What is typically higher – the cost of debt or the cost of equity?

Posted by

To view Verified answers click on the button below.

The cost of equity is higher than the cost of debt because the cost associated with
borrowing debt (interest expense) is tax deductible, creating a tax shield. Additionally,
the cost of equity is typically higher because unlike lenders, equity investors are not
guaranteed fixed payments, and are last in line at liquidation.