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Weighted average cost

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  • This topic has 1 reply, 2 voices, and was last updated 7 months ago by John Moffat.
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  • May 6, 2020 at 7:25 am #570119
    gayathree1234

    Hi sir,

    is weighted average cost of capital is minimum when borrowings are maximised?

    Thank you:)

    May 6, 2020 at 8:23 am #570127
    John Moffat
    Keymaster

    In future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other.

    According to Modigliani and Miller, then if there is corporate tax the WACC will be a minimum when borrowings are maximised. (Without corporate tax the WACC will not change).
    However M&M relies on many assumptions that are unlikely to all hold in practice.

    This is all explained in my free lectures on the effect of changes in gearing.

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