Question: 1. In what sense is the WACC an average cost? A marginal cost?
2. How would each of the following affect a firm's cost of debt, rd(1 T); its cost of equity, rs; and its weighted average cost of capital, WACC? Indicate by a plus (), a minus (), or a zero (0) if the factor would raise, lower, or have an indeterminate effect on the item in question. Assume other things are held constant. Be prepared to justify your answer, but recognize that several of the parts probably have no single correct answer; these questions are designed to stimulate thought and discussion.
