Debt capital less risky than equity capital because the firm is legally obligated to pay interest to bondholders but they are not legally obligated to pay dividends to preferred or common stockholders.

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This statement is true. When a company issues debt capital (bonds), they have a legal obligation to pay interest to bondholders. However, they do not have the same legal obligation to pay dividends to preferred or common stockholders, who provide equity capital. As a result, debt capital is generally considered less risky than equity capital because bondholders have a higher priority in receiving payment in the event of bankruptcy or liquidation of the company.

Debt Capital Less Risky Than Equity Capital Because the Firm