______ 26. A firm has determined its cost of each source of capital and its optimal capital structure, which is

composed of the following sources and target market value proportions:

Source of Capital	Target Market Proportions:	After-Tax Cost
Long-Term Debt	45%	5%
Preferred Stock	10%	14%
Common Stock Equity	45%	22%

If the firm were to shift toward a more leveraged capital structure (i.e., a greater percentage of

debt in the capital structure), the weighted average cost of capital would

A. increase.

B. remain unchanged.

C. decrease.

D. not be able to be determined.

41. A firm has common stock with a market price of $25 per share and an expected dividend of $2 per

share at the end of the coming year. The growth rate in dividends has been 5%. Calculate the cost

of the firm