What is cost of equity and cost of debt?
The Basis on Interest
Which is higher the cost of equity or the cost of debt and why?
Typically, the cost of equity exceeds the cost of debt. The risk to shareholders is greater than to lenders since payment on a debt is required by law regardless of a company's profit margins. Equity capital may come in the following forms: Common Stock: Companies sell common stock to shareholders to raise cash.
Is cost of debt lower than cost of equity?
Well, the answer is that cost of debt is cheaper than cost of equity. As debt is less risky than equity, the required return needed to compensate the debt investors is less than the required return needed to compensate the equity investors.
Why does equity generally cost more than debt financing quizlet?
Equity capital is in greater demand than debt capital. more expensive to finance with equity than with debt. Answer (b) is correct because equity holders are subject to more risk than debt holders. Therefore, they require a higher rate of return.
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