A Company Is Planning to Raise $1 Million to Finance

A company is planning to raise $1 million to finance a new plant. Which of the following best describes the cost of debt?

A) The company would be especially eager to have a call provision included in the indenture if its management thinks that interest rates are almost certain to rise in the foreseeable future.
B) If debt is used to raise the $1 million, with $500,000 as first mortgage bonds on the new plant and $500,000 as debentures, the interest rate would be lower than it would be if the entire $1 million were raised by selling first mortgage bonds.
C) If two tiers of debt are used (with one senior and one subordinated debt class) , the subordinated debt will carry a lower interest rate.
D) If debt is used to raise the $1 million, the cost of the debt would be lower if the debt were in the form of a fixed-rate bond rather than a floating-rate bond.