Which of the following statements is MOST correct?
Because the cost of debt is lower than the cost of equity, value-maximizing firms maintain debt ratios of close to 100%.
Corporations that are 100% equity financed will have a much lower weighted average cost of capital because the lack of debt lowers their risk of bankruptcy.
The source of capital with the lowest after-tax cost is preferred stock, because it is a hybrid security, part debt and part equity.
The cost of a particular source of capital is equal to the investor's required rate of return after adjusting for the effects of both flotation costs and corporate taxes.