Question

Which statement describes the general cost of debt compared with equity?

Options

• Debt is usually cheaper; equity is generally costlier than debt

• Equity is always cheaper because dividends are compulsory

• Debt is generally costlier than equity

• Debt and equity never have a cost

Answer 1

Debt is usually cheaper, while equity is generally costlier than debt. Cost alone does not determine the best source because risk and other factors also matter.