What happens to WAAC as the proportion of debt in a capital structure increases?

Question

Quizplus · Accepted Answer

As the proportion of debt in a capital structure increases, the cost of debt usually remains constant or increases slightly, while the cost of equity typically increases at an increasing rate due to the higher financial risk. This results in a decrease in the overall weighted average cost of capital (WAAC) as the proportion of debt increases.

What Happens to WAAC as the Proportion of Debt in a Capital