If the shape of the curve depicting a firm's WACC versus its debt ratio is more like a sharp "V", as opposed to a shallow "U", the easier it will be for the firm to maintain a steady dividend in the face of varying investment opportunities from year to year.

Question

Quizplus · Accepted Answer

A sharp "V" shape indicates that the firm's WACC is highly sensitive to changes in the debt ratio, making it harder to maintain a steady dividend as investment opportunities vary. A shallow "U" would suggest more stability in WACC, allowing for steadier dividends.

If the Shape of the Curve Depicting a Firm's WACC