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Rank the sources of long-term capital from least to most expensive for the firm. Preferred stock,...

Rank the sources of long-term capital from least to most expensive for the firm.

Preferred stock, common stock, debt

Debt, preferred stock, common stock

Common stock, preferred stock, debt

Debt common stock, preferred stock

Solutions

Expert Solution

Common stock, Preferred stock and debt are sources of Long term capital for a company.

Long term Debt - These type of funds borrowed by a company at a fixed rate of interest. The company have to pay interest even if there are no profits.

Preferred stock- These type of capital may also have a fixed rate of dividend but it is not necessary to pay a dividend in the case of loss. Perferred stockholder has a right to get a dividend before common stockholders if the company distribute the profits. And the company also defer the payment of dividend.

Common stock- It is upon company to pay a dividend to common stockholders. If there are business opportunities are available than a company may invest the whole earning. So it is not necessary to pay any sum to common stockholders even if there are profits available.

Least to the most expensive source of the long-term fund-

1. Common stock

2. Preferred stock

3. Debt

Option C is correct.

jeff jeffy answered 1 year ago
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