What Happens to WACC When Debt is Significantly Increased

This is the question which has been asked Student at University of Western Sydney in Linkedin and Answer has given by 4 Accounting experts of Linkedin include me. See Screencast.

I have written

WACC is just combination of different costs which we have to pay on all the sources of finance. If we increase the any source for example if we increased debt from 50% to 70%, it means level of equity will decrease same proporation in calculating of WACC if we have to keep capital structure level at 100% from debt and equity. So, WACC is not effected from this. But, if we think like Paul Myles ( Answer given before me ) it should decrease because, we have started trading on equity and shareholder only accept this proposal, if we are getting more loan on cheap interest rates. I think, you understand what I want to explain to you.

Important Note:

Recently, Linkedin the major social networking site started the ask and answer the questions of financial accounting. If you are student, you can take free services from the accounting experts in linkedin by making your profile and ask the question by just few clicks.