Problem:

Affirm Timer Zeta, Inc., a pharmacutical firm can raise up to $700 million for investment from a mixture of debt, preferred stock and retained equity. Above $700 million, the firm must issue new common stock. Assuming that debt costs and preferred stock costs remain unchanged, the marginal cost of capital for amounts up to $700 million will be ____ the marginal cost of capital for amounts over $700 million

• less than
• equal to
• greater than
• cannot be determined from the information given

Note: Please provide equation and explain comprehensively and give step by step solution.