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Which of the following sources of new capital has the higher after tax cost

Bonds
Preferred stock
Common stock
Retained earnings

User Cyberz
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1 Answer

2 votes

Final answer:

Bonds have the higher after-tax cost compared to preferred stock, common stock, and retained earnings. The correct answer is option A.

Step-by-step explanation:

The source of new capital with the higher after-tax cost is Bonds. When a company issues bonds, it promises to pay interest to the bondholders. This interest payment is tax-deductible, meaning the company can deduct it from its taxable income, resulting in a lower after-tax cost compared to other sources of capital.

Preferred stock and common stock do not have an after-tax cost because they represent ownership in the company and do not require interest payments. Retained earnings do not have a direct cost since they are generated from the company's profits.

User Binyamin Even
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