The overall (weighted average) cost of capital is composed of a weighted average of :

a)The cost of common equity and the cost of debt
b)The cost of common equity and the cost of preferred stock
c)The cost of preferred stock and the cost of debt
d)The cost of common equity, the cost of preferred stock, and the cost of debt

Question No: 2
Which of the following is a characteristic of preferred stock?
a)These stocks have not stated liquidating value
b)Dividends on these stocks can be cumulative
c)These stocks hold credit ratings quite different from bonds
d)These stocks have not any kind of priority over common stocks

To determine the answer to the first question, we need to calculate the weighted average cost of capital (WACC). This involves taking the cost of each component of capital (common equity, debt, and preferred stock) and weighting them based on their proportion in the company's capital structure.

The answer to the first question is option d) The cost of common equity, the cost of preferred stock, and the cost of debt. The WACC includes all three components of capital - common equity, preferred stock, and debt.

To determine the answer to the second question, we need to understand the characteristics of preferred stock. Preferred stock is a type of ownership in a company that has characteristics of both equity and debt.

The answer to the second question is option b) Dividends on these stocks can be cumulative. Preferred stockholders generally have the right to receive a fixed dividend payment before any dividends are paid to common stockholders, and cumulative preferred stock allows for any missed dividend payments to accumulate and be paid at a later date.