The pretax cost of debt is less than the pretax cost of equity.

Question

Quizplus · Accepted Answer

This statement is generally true as the cost of debt is tax-deductible, making it a cheaper source of financing compared to equity. As a result, the pretax cost of debt is usually lower than the pretax cost of equity. However, there may be certain situations where the reverse is true, such as when a company has a very high debt-to-equity ratio or if the perceived riskiness of the company's debt is high.

The Pretax Cost of Debt Is Less Than the Pretax