1. Why is the cost of financing a project with retained earnings less than the cost of financing it with a new issue of common stock?

2. The cost of preferred stock is 6 percent, and the cost of debt is 8 percent. The relevant tax rate is 35 percent. The company president has approached you about its capital structure. He wants to know why the company doesnt use more preferred stock financing because it costs less than debt. What would you tell the president?