To follow up, I realize people might want to elaborate on point 1 - why the market would or wouldn’t like the leveraged recap, although if I were in an actual interview, I wouldn’t dive headfirst immediately unless the interviewer encouraged me to do so. It can be pretty mind numbing, as everyone’s intelligent replies show. Also, WACC doesn’t fall just because you do a leveraged recap. Yes, you get more of that “cheap” cost of debt in your cap structure, but you also raise your cost of equity. Cost of equity rises because of the extra leverage. You can accept that if you like to think fundamentally, or you can go by CAPM and say that your levered beta rises since you increase leverage. I don’t look at this stuff every day so I’ve no idea what “usually” happens to WACC (if that’s even determinable) but the additional debt is somewhat offset at least by the rising cost of equity. Apologies if all this has already been said.