Practicing Success
Practicing Success
CUET Preparation Today
| Which of the following statements is NOT true? |
The cost of debt is higher than cost of equity. The lender’s risk is lower then equity shareholder’s risk. The interest paid on debt is treated as a tax deductible expense. None of the above |
| The cost of debt is higher than cost of equity. |
| Debt and equity differ significantly in their cost and riskiness for the firm. The cost of debt is lower than the cost of equity for a firm because the lender’s risk is lower than the equity shareholder’s risk, since the lender earns an assured return and repayment of capital and, therefore, they should require a lower rate of return. |
