The cost of equity share capital is more than the cost of debt because
Equity shares carry greater risk than debt, so shareholders require a higher expected return. Equity holders have a residual claim after creditors, and their returns are…
Choose your answer
The cost of equity share capital is more than the cost of debt because
Answer and explanation
Correct answer D
Equity shares carry greater risk than debt, so shareholders require a higher expected return. Equity holders have a residual claim after creditors, and their returns are less certain. The relative face values of shares and debentures do not explain the difference in required returns.
Practice for these exams
-
Karnataka SET (KSET)