Does a company ever want a higher WACC?
Trying to decipher this sentence that came from a request on how we are reporting WACC; "a higher WACC is better as many times it is used as a benchmark for capital projects", which started from a discussion in waterfalling trending WACC movements and that basically the upward movement of WACC should be considered as a positive. This threw me for a loop, as I can't think of an instance where any company would want a higher WACC? Is this ever true?
No firm wants a higher WACC. First that would lead to a lower valuation of their firm. But mainly, it would be a signal that the firm has a higher risk associated with its operations. Essentially that firm’s investors are requiring a higher return in their capital.
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