Debt financing 1. increases stockholders' return more than an equal dollar amount of preferred stock 2. increases stockholders' return less than an equal dollar amount of preferred stock 3. is less risky to the investor than preferred stock 4. is more risky to the investor than preferred stock 1) 1 and 3 2) 1 and 4 3) 2 and 3 4) 2 and 4 The marginal cost of capital 1) is the firm's cost of debt and equity finance 2) is constant given an optimal capital structure 3) declines as flotation costs alter equity financing 4) refers to the cost of additional financing Retained earnings 1) have no cost 2) are the firm's cheapest sources of funds 3) have the same cost as new shares of stock 4) are cheaper than the cost of new shares