Finance · Cost of Capital
Why is the cost of debt capital generally lower than the cost of equity share capital?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Debentures carry higher financial risk to investors than equity.
- 2Equity investments carry higher risk than debt investments, and interest on debt is tax-deductible.✓
- 3Equity shares carry lower risk than debt.
- 4Market value of equity shares is less than debentures.
Correct answer
Equity investments carry higher risk than debt investments, and interest on debt is tax-deductible.
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