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Choose the Most Correct answer for relative costs of components of a firm's capital structure . Where: R S = Rate investors demand on a
Choose the Most Correct answer for relative costs of components of a firm's capital structure. Where: RS = Rate investors demand on a firm's STOCK RD = Rate investors demand on a firm's DEBT (i.e., the Yield to Maturity of the firm's debt). WACC = The firm's Weighted Average Cost of Capital t = the firm's tax rate. "<" means "Less Than" ">" means "Greater Than or equal to"
a) RS > RD > WACC
b) WACC > RS > RD
c) RS > RD > RD(1-t)
d) RS < RD(1-t) < RD
e) None of these relationships is correct.
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