Using the WACC framework, suppose that a companys current cost of equity is 10% and...
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Finance
Using the WACC framework, suppose that a companys current cost of equity is 10% and that a companys cost of debt is 6%. The tax rate is 38%. All else being equal, if the companys cost of debt suddenly increased by two percentage points (i.e., increased from 6% to 8%), what is the most reasonable statement about what would happen to the companys weighted average cost of capital?
A. Decrease
B. It must increase by 2%
C. Not change
D. It must decrease by 2%
E. You need to know the capital structure to get a better idea
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