Lower weighted average cost of capital

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Reference no: EM131328250

Which of the following statements is MOST correct?

Because the cost of debt is lower than the cost of equity, value-maximizing firms maintain debt ratios of close to 100%.

Corporations that are 100% equity financed will have a much lower weighted average cost of capital because the lack of debt lowers their risk of bankruptcy.

The source of capital with the lowest after-tax cost is preferred stock, because it is a hybrid security, part debt and part equity.

The cost of a particular source of capital is equal to the investor's required rate of return after adjusting for the effects of both flotation costs and corporate taxes.

Reference no: EM131328250

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