If the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", it will be easier for the firm to maintain a steady dividend in the face of varying investment opportunities or earnings from year to year.

Question

Quizplus · Accepted Answer

A sharp "V" shape in the WACC curve indicates a more sensitive cost of capital to changes in the debt ratio, making financial planning and maintaining steady dividends more challenging, especially under varying investment opportunities or earnings.

If the Shape of the Curve Depicting a Firm's WACC