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XY has a weighted average cost of capital (WACC) of 12%.Thedebt:equity ratiois 1:3 and this is considered low for the industry. XY needs to raise finance to purchase newmachinery in the coming year.
Which of the following forms of finance is most likely to increase the WACC?
Suggested Answer: A
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3 comments · newest first
SE
Serita
3 days ago
I practiced a similar question where debt was cheaper than equity. I feel like the bank loan might not increase WACC much, so maybe it’s not B.
HO
Hortencia
8 days ago
I’m not sure, but I think preference shares can also increase WACC since they have a fixed return. Could it be C?
HO
Hollis
13 days ago
I remember that increasing equity can raise WACC since equity is usually more expensive than debt. So, A might be the answer.