Which of the following statements is most correct?
A) The before-tax cost of preferred stock may be lower than the before-tax cost of debt,even though preferred stock is riskier than debt.
B) If a company's stock price increases,this increases its cost of equity capital.
C) If the cost of equity capital is low enough,it may be cheaper to issue common stock than it is to finance projects with retained earnings.
D) Both a and b are correct.
E) Answers a,b,and c are all correct.

Question

Quizplus · Accepted Answer

The before-tax cost of preferred stock may be lower than the before-tax cost of debt due to market conditions or specific terms of the preferred stock, even though preferred stock is generally riskier than debt.

Which of the Following Statements Is Most Correct