Given a text T, and several options, according to the question posed in the text T to choose the most appropriate option from the options as the answer, please directly output the most appropriate option, do not need to output the explanation.

Barbara Andrade is an equity analyst who covers the entertainment industry for Greengable Capital Partners, a major global asset manager. Greengable owns a significant position with a large unrealized capital gain in Mosely Broadcast Group (MBG). On a recent conference call, MBG's management states that they plan to increase the proportion of debt in the company's capital structure. Andrade is concerned that any changes in MBG's capital structure will negatively affect the value of Greengable's investment.To evaluate the potential impact of such a capital structure change on Greengable's investment, she gathers the information about MBG given in Exhibit 1.
| Exhibit l.Current Selected Financial Information forM BG |
| Yield to maturity on debt | 8.00% |
| Market value of debt | $100milion |
| Number of shares of common stock | 10mllon |
| Market price per share of common stock | $30 |
| Cost of capital if all equity-fiance d | 10.3% |
| Marginal tax rate | 35% |


Andrade expects that an increase in MBG's financial leverage will increase its costs of debt and equity. Based on an examination of similar companies in MBG's industry, Andrade estimates MBG's cost of debt and cost of equity at various debt-to-total capital ratios, as shown in Exhibit 2.
| Exhibit 2.Estimates of MBG's before Tax Costs of Debt and Equity |
| Debt-to-Total Capital Ratio(%) | Cost of Debt(%) | Cost of Equ ty(%) |
| 20 | 7.7 | 12.5 |
| 30 | 8.4 | 13.0 |
| 40 | 9.3 | 14.0 |
| 50 | 10.4 | 16.0 |


 
According to the pecking order theory, MBG’s announced capital structure change may be optimal:
Option A:because debt is cheaper than equity on an after- tax basis.
Option B:if new equity is issued before new debt as a source of capital.
Option C:if new debt is issued after all internally generated funds are first used as sources of capital.

Answer: C