Question
Which of the following best describes why the weighted-average cost of capital (WACC) is first downward sloping and then upward sloping? Group of answer choices
Which of the following best describes why the weighted-average cost of capital (WACC) is first downward sloping and then upward sloping?
Group of answer choices
At first the WACC decreases as more expensive debt is traded for less expensive equity. Then, the cost of both debt and equity increase so much that the the WACC goes up despite the fact that the swap of more expensive debt for cheaper equity continues.
At first the WACC decreases as more expensive equity is traded for less expensive debt. Then, the cost of both equity and debt increase so much that the the WACC goes up despite the fact that the swap of more expensive equity for cheaper debt continues.
At first the WACC increases as more expensive equity is traded for less expensive debt. Then, the cost of both equity and debt decrease so much that the the WACC goes down despite the fact that the swap of more expensive equity for cheaper debt continues.
At first the WACC decreases as more expensive equity is traded for less expensive debt. Then, the cost of debt goes up while the cost of equity goes down and ultimately more expensive debt is being traded for cheaper equity.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started