The BongoBongo Drum Co. uses debt and equity in its capital structure and has positive earnings.
An increase in the ﬁrm's debt rating from BBB to A would decrease the ﬁrm's WACC.

Question

Quizplus · Accepted Answer

An increase in the firm's debt rating would generally lead to a decrease in the cost of debt, as the firm would be seen as less risky by lenders. This would result in a lower WACC, as the cost of debt is a component of the WACC calculation.