Generally, the order of cost, from the least expensive to the most expensive, for long-term capital of a corporation is
A) new common stock, retained earnings, preferred stock, long-term debt.
B) common stock, preferred stock, long-term debt, short-term debt.
C) preferred stock, retained earnings, common stock, new common stock.
D) long-term debt, preferred stock, retained earnings, new common stock.

Question

Quizplus · Accepted Answer

Long-term debt is typically the least expensive form of long-term capital for a corporation because it has a fixed interest rate and does not require giving up ownership in the company. Preferred stock and retained earnings may be more expensive, as they involve sharing ownership or paying dividends to shareholders. New common stock may be the most expensive, as it involves diluting the ownership of existing shareholders and may require paying underwriting fees to investment banks. Therefore, the order of cost is generally long-term debt, preferred stock, retained earnings, and new common stock.

Generally, the Order of Cost, from the Least Expensive to the Most