Question

why does a firm WACC is higher then their industry WACC and why does a firm WACC is lower then their industry

Answer 1

A Company's cost of capital is the cost of raising fund by the company. As the company may raise fund from multiple sources like equity ,debt, preference shares etc, cost of raised fund would be the weighted average of the cost of capital raised from multiple souces.

As a general rule of investment, Higher risk should always come with higher return. Hence an investor who invest in a riskier company's(like newly emerged company's) debt or equity shares would do so only if he expects higher interest , dividend respectively on these.

Hence it is clearly that a company carrying higher risk of earning profits or growth or even survival will be able to raise fund at a higher costs than other similar companies in the industry with lower risk Therefore their WACC shall be higher. While companies with lower risk can raise money at lower costs therefore their WACC shall be lower.

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