hard · Investment Banking
A company has a Cost of Equity of 12% and an after-tax Cost of Debt of 4%. Its current Market Cap is $600 million and it has $400 million in debt.
If it issues $200 million in new equity to retire $200 million of debt, what happens to the WACC (assuming no change in the cost of components)?
- WACC decreases because financial risk is lower
- WACC remains the same
- WACC increases
- WACC decreases
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