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Your company just issued bonds that have a yield to maturity of 8%

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Your company just issued bonds that have a yield to maturity of 8%. Your firm has an issue of preferred stock outstanding which pays a 7% dividend yield. Your company pays taxes at a rate of 21%.

The president of your company has just suggested to you that in order to lower the WACC and increase the firm's value you should issue more preferred stock and buy back your bonds. What should you tell her in this case?

A. Good idea. Since the cost of preferred is lower than the cost of the debt, your cost of capital will go down by using more preferred.

B. Bad idea. Since the cost of preferred is lower than the cost of the debt, your cost of capital will go down by using more preferred.

C. Good idea. Since the after-tax cost of debt is lower than the after-tax cost of the preferred, your cost of capital will go down by using more preferred.

D. Bad idea. Since the after-tax cost of debt is lower than the after-tax cost of the preferred, your cost of capital will go up by using more preferred.

E. Bad idea. Since the after-tax cost of debt is lower than the after-tax cost of the preferred, your cost of capital will go down by using more preferred.