Which of the following statements is consistent with the traditional theory of capital structure?

In the context of financing decisions, consider the truth value of the following statements regarding the fundamental trade-offs between debt and equity: Statement 1: Debt is typically a cheaper source of funds for an organization, but its use results in an increase in the firm's financial risk. Statement 2: Raising funds through equity is considered a safer alternative for the enterprise, although it leads to the dilution of ownership control.

Assertion (A): Trading on equity raises the return on equity to the shareholders of a company. Reason (R): The cost of debt is lower than the cost of equity and interest paid on debt is tax deductible.