"The question of whether Grenarp Co might achieve its optimal capital structure following the rights issue can also be
discussed from a practical perspective, by considering if increasing the gearing of the company would decrease its WACC.
This would happen if the marginal cost of capital of the company were less than its WACC. "
What is the mean of the marginal cost of capital in the sentences? Why if the MCC less than WACC will decrease WACC ?
This is part of the examiner answer and I have watched the lecture, thank you.
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june 2015 Q4
7y ago#1Marginal means extra (as it always does).
If the extra cost of more capital is lower than the current WACC, then the WACC must obviously decrease.
You do not need to use the word marginal in answers - the word 'extra' is quite sufficient.
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