A firm has a cost of equity of 10%, a cost of preferred of 9%, and an aftertax c

Question

A firm has a cost of equity of 10%, a cost of preferred of 9%, and an aftertax cost of debt of 5%. Given this, which one of the following will decrease the firm's weighted average cost of capital?

A) redeeming the bond issue

B) decreasing the debt-equity ratio

C) issuing new equity securities

D) increasing the systematic risk level of the firm

E) issuing new debt

A) redeeming the bond issue

B) decreasing the debt-equity ratio

C) issuing new equity securities

D) increasing the systematic risk level of the firm

E) issuing new debt

Explanation / Answer

E) issuing new debt

because cost of debt is less

E) issuing new debt

because cost of debt is less

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