Which one of the following is a correct statement concerning the weighted average cost of capital?

Multiple Choice

• Preferred stock is generally the cheapest form of external financing.

• An increase in interest rates by the Bank of Canada generally has no effect on a firm's cost of capital.

• The use of debt generally lowers a firm's cost of capital, at least initially.

• Taxes help lower the cost of debt and preferred stock financing.

• The weighted average cost of capital remains constant for a firm over time.