Question

    A central PSU adopts sovereign guarantee-backed debt for

    a ₹2,000 crore infrastructure project. What impact will this have on its cost of capital?
    A Increase WACC due to higher equity Correct Answer Incorrect Answer
    B Reduce WACC due to reduced risk premium Correct Answer Incorrect Answer
    C Increase beta due to project risk Correct Answer Incorrect Answer
    D No impact Correct Answer Incorrect Answer

    Solution

    Sovereign backing reduces the firm's credit risk, lowering the cost of debt and therefore the WACC.

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