ABC Corp. has a AAA credit rating while XYZ Corp. has an A credit rating. Can XYZ's WACC ever be lower than ABC'S?

Yes, it is possible for XYZ Corp. with an A credit rating to have a lower Weighted Average Cost of Capital (WACC) than ABC Corp. with a AAA credit rating. Here's why:

1. Credit Rating and Cost of Debt: Generally, a higher credit rating (like AAA) indicates lower risk, which means the company can borrow at a lower interest rate. So, ABC Corp. would typically have a lower cost of debt than XYZ Corp.

2. However, WACC is not solely determined by the cost of debt. It's a combination of the cost of equity and the cost of debt, weighted by their respective proportions in the company's capital structure.

3. Cost of Equity: The cost of equity can be influenced by factors like business risk, financial risk, liquidity risk, etc. If XYZ Corp. operates in a less risky industry or has a more stable cash flow, it might have a lower cost of equity than ABC Corp.

4. Capital Structure: If XYZ Corp. uses less debt in its capital structure, it could have a lower WACC. This is because debt is generally more expensive than equity, especially for companies with lower credit ratings.

5. Market Conditions: Market conditions can also influence WACC. For example, if interest rates fall, the cost of debt for XYZ Corp. might decrease more than that for ABC Corp., leading to a lower WACC.

So, while credit rating is an important factor, it's not the only one that determines a company's WACC. Other factors can lead to a company with a lower credit rating having a lower WACC.