If the new common stock costs are greater than the cost of internal common equity, what will happen as the equity break point is passed?
A) The MCC will rise then fall.
B) The MCC will remain unchanged.
C) The MCC will fall.
D) The MCC will rise.

Question

Quizplus · Accepted Answer

When the equity breakpoint is passed and the company starts using new common stock which costs more than internal common equity, the marginal cost of capital (MCC) will rise due to the higher cost of new equity.

If the New Common Stock Costs Are Greater Than the Cost