How does a 50/50 WACC vary across the six primary business credit ratings?A 50/50 WACC rises by consistent amounts across credit ratings.The cost of after-tax equity rises at a higher rate than pre-tax equity.The after-tax cost of debt rises at higher rates as credit ratings are lower.The cost of equity rises at a significantly higher rate than the cost of debt.

The Weighted Average Cost of Capital (WACC) is a measure of a company's cost of capital, taking into account the relative weights of equity and debt in the capital structure. A 50/50 WACC implies that the company's capital structure is composed of 50% equity and 50% debt.

1. Across the six primary business credit ratings, a 50/50 WACC would vary depending on the cost of equity and the cost of debt for each credit rating. Higher credit ratings typically have lower costs of debt, as they are seen as less risky by lenders.

2. The cost of after-tax equity would rise at a higher rate than pre-tax equity because taxes reduce the net income available to equity holders, increasing the cost of equity.

3. As credit ratings decrease, the perceived risk of the company increases. This leads to an increase in the cost of debt, as lenders demand higher interest rates to compensate for the increased risk. Therefore, the after-tax cost of debt would rise at higher rates as credit ratings are lower.

4. The cost of equity typically rises at a significantly higher rate than the cost of debt. This is because equity holders are the last to be paid in the event of bankruptcy, making equity a riskier form of financing than debt. As a result, equity holders require a higher return to compensate for this increased risk.

In conclusion, a 50/50 WACC would vary across the six primary business credit ratings due to differences in the cost of equity and the cost of debt for each credit rating. The cost of equity and the after-tax cost of debt would both rise as credit ratings decrease, but the cost of equity would rise at a significantly higher rate.