The cost of equity
1) is less than the cost of debt
2) is greater than the cost of debt
3) depends on the riskiness of the firm
4) depends on the firm's current ratio
A)1 and 3
B)1 and 4
C)2 and 3
D)2 and 4

Question

The cost of equity​
1) is less than the cost of debt
2) is greater than the cost of debt
3) depends on the riskiness of the firm
4) depends on the firm's current ratio
A)​1 and 3
B)1 and 4​
C)2 and 3​
D)2 and 4​

Quizplus · Accepted Answer

The cost of equity is generally higher than the cost of debt because equity represents ownership in the company and carries more risk. Additionally, the cost of equity depends on the riskiness of the firm as riskier firms may require a higher return to compensate investors for the increased risk. The current ratio, which measures a company's ability to pay its short-term obligations with its current assets, is not directly related to the cost of equity.

The Cost of Equity​

The Cost of Equity