A Firm Has Determined Its Cost of Each Source of Capital

question 89

Multiple Choice

A firm has determined its cost of each source of capital and optimal capital structure,which is composed of the following sources and current market value proportions: Other things remaining constant,if the firm were to shift toward a capital structure with ________ the weighted average cost of capital will be higher.

• A) 45% long-term debt, 40% common stock, and 15% preferred stock
• B) 60% long-term debt, 20% common stock, and 20% preferred stock
• C) 20% long-term debt, 60% common stock, and 20% preferred stock
• D) 60% long-term debt, 30% common stock, and 10% preferred stock

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Definitions:

Liability

An obligation of the company that arises from past transactions or events, leading to a probable future sacrifice of economic benefits.

Internal User

individuals within an organization who use financial information to make decisions, including managers and employees.

Accounting Data

Information and records relating to the financial activities of a business, including transactions, balances, and other financial statements.

Labour Union

An organization that represents the collective interests of workers in negotiations with employers over wages, working conditions, and other employment terms.