A central PSU adopts sovereign guarantee-backed debt for

Explanation Sovereign backing reduces the firms credit risk, lowering the cost of debt and therefore the WACC.

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

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

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