A Firm Has Determined Its Cost of Each Source of Capital

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