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Question
Statement - 1: The cost of debt is more than the cost of equity.
Statement - 2: Lenders risk is lower than the equity shareholders risk.
In the light of the given statements, choose the correct alternative from the following:
Options
Both the Statements are true.
Both the Statements are false.
Statement I is true, Statement II is false.
Statement I is false, Statement II is true.
MCQ
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Solution
Statement I is false, Statement II is true.
Explanation:
Statement I is false because the cost of debt is typically less than the cost of equity. Debt financing offers investors fixed interest payments and priority over equity shareholders after liquidation, making it less risky.
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