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:

Repayment Schedule

A timeline that specifies when and how much a borrower needs to pay back to the lender, often detailing monthly payments and interest rates.

Creditors

Individuals, businesses, or financial institutions that are owed money by a debtor, typically as a result of extending credit or lending funds.

Bankruptcy Filing

The legal process by which individuals or businesses declare their inability to pay their debts, seeking relief through the restructuring of debts or the liquidation of assets.

Legal Requirements

Regulations or obligations dictated by law that must be adhered to by individuals, organizations, or businesses.