In reality,the cost of equity is always less than the cost of debt because firms are not obligated to pay out cash to shareholders.

Question

Quizplus · Accepted Answer

The statement is false. Generally, the cost of equity is higher than the cost of debt because equity investors are not guaranteed a fixed rate of return and their investment is considered riskier than debt. Shareholders may also require a higher return on their investment to compensate for the lack of guaranteed payments.

In Reality,the Cost of Equity Is Always Less Than the Cost