Debt capital:A) costs the least because it's the most risky to the firm (interest creates financial risk) .B) costs the most because it's safer and therefore more desirable.C) is cheapest because it's safest from the investor's perspective and interest is tax deductible to the issuing company.D) costs more than preferred because preferred is the most stable security.

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Kiera Robertson · Accepted Answer

Final Answer : C, Explanation :  Debt capital is usually the cheapest form of capital because it is considered safer from the investor's perspective and interest payments are tax deductible to the issuer. Preferred stock may have a stable dividend payment, but it is not considered debt capital and therefore may have a higher cost of capital. Option A is incorrect because debt capital is generally considered less risky than equity capital, as the issuer is obligated to make interest payments regardless of the company's performance. Option B is also incorrect because a safer security typically has a lower cost of capital.

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