Question

Which of the following scenarios would cause a company's WACCC to decrease? The firm expands intoa risky new area. The firm is an electric utility with a large investment in coal-fired plants. The Environmental Protection Agency is considering a ban on coal power generation. The Federal Reserve tightens credit The firm merges with another firm whose earnings are countercyclical both to those of the first firm and to the stock market.

Answer 1

WACC = WEIGHTED AVERAGE COST OF CAPITAL.  

It's the overall cost of raising funds for the firm.

If the credit is tightens or a firm takes risk or uncertainty in Business happens then the overall cost of raising funds increases.

On the other hand if the firm mergers with the counter cyclic firm then it brings stability to business which in turn reduces risk and decreases the overall cost of raising funds.

Answer: d. the firm mergers with the counter cyclic firm.