Back to DCF questions
📈 DCF
Medium
Two identical companies — one has debt, one doesn't. Which has the higher WACC?
Answer
The all-equity company has the higher WACC. Debt is cheaper than equity because (1) interest is tax-deductible (tax shield) and (2) debt is senior in the capital stack.
Continue reading the full answer
Plus the detailed banker explanation of what interviewers are really testing.
WACCcapital structure