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Talus Inc. is considering a financial restructuring. Talus estimates its cost of debt is 6% and...

Talus Inc. is considering a financial restructuring. Talus estimates its cost of debt is 6% and its cost of equity is 15.5%. Talus is considering issuing additional shares of stock in order to retire some of its debt. If Talus is currently financed with 50% equity and 50% debt and pays no corporate income taxes, how will this transaction impact Talus’ weighted average cost of capital (WACC)?

a. WACC increases

b. WACC decreases

c. WACC is zero

d. WACC does not change

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