The cost of equity or the cost of debt
Which is lesser for a particular company: the cost of equity or the cost of debt (ignoring taxes)? Explain.
Expert
The debt cost is less than the equity cost for a particular firm. This is mainly since the debt investor is taking a risk which is lower than the equity investor and thus the required rate of return is lower.
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Rs. Sales 2,40,000 Variable costs 1,44,000 Fixed costs 26,000 Profit before tax 70,000 Rate of tax 40% Firm is proposing to buy the new plant that could generate extra annual profit of Rs. 10,000. The fixed cost of new plant is expected to Rs. 4000. New plant would increase sales volume by Rs. 40,00
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