that shareholders are a lower priority in the case of liquidation means that preferred stock is not the cheapest after tax source of financing.

B. Because bond interest is tax deductible and because bondholders have a priority claim to the assets of the company, bonds usually have the lowest after tax cost of the items listed as choices.

C. Dividends are not tax deductible and this connected with the costs of the issuance of shares and the fact that shareholders are a lower priority in the case of liquidation means that retained earnings is not the cheapest after tax source of financing.

D. Dividends are not tax deductible and this connected with the costs of the issuance of shares and the fact that shareholders are a lower priority in the case of liquidation means that common stock is not the cheapest after tax source of financing.