Question

What would happen to the weight of debt, weight of common stock, and WACC, if the interest rates are lower now than when the bonds were issued?

Answer 1

If the internet rates are lower than the bonds issued then our bonds giving more interest when compared to other bonds which are issuing now, as it results increase the bond market price and gives more yield to the company. While the bond rates are increasing every one are most likely to prefer invest in the company which gives more yield consequently company's share of debt proportion will increase and equity proportion may fallen. As interest rates are fluctuating it can effect firm's WACC because the risk free rate is an important factor in calculating cost of capital