Generally, the order of cost, from the least expensive to the most expensive, for long-term capital of a corporation is ________.
A) new common stock, retained earnings, preferred stock, long-term debt
B) common stock, preferred stock, long-term debt, short-term debt
C) preferred stock, new common stocks, common stock, retained earnings
D) long-term debt, preferred stock, retained earnings, new common stock

Question

Quizplus · Accepted Answer

Long-term debt is generally the least expensive form of long-term capital as it carries a lower interest rate than preferred stock, which in turn is less expensive than new common stock. Retained earnings may not require any cost to obtain, but there is an opportunity cost associated with using those funds rather than investing them in other projects or distributing them to shareholders.

Generally, the Order of Cost, from the Least Expensive to the Most