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How does the cost of equity compare with the cost of debt?

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Question

How does the cost of equity compare with the cost of debt?

Options

  • Equity is the cost of debt

  • Equity is a fixed financial charge

  • Equity is costlier than debt

  • Equity is cheaper than debt

MCQ
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Solution

Equity is costlier than debt. Debt is comparatively cheaper because interest is tax-deductible.

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