If the cost of debt is less than the cost of equity, should the firm use only debt for
entire financing? Discuss.
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Debt Financing vs. Equity Financing: An Overview
When financing a company, "cost" is the measurable cost of obtaining capital. With debt, this is the interest expense a company pays on its debt. With equity, the cost of capital refers to the claim on earnings provided to shareholders for their ownership stake in the business.
Debt Financing
When a firm raises money for capital by selling debt instruments to investors, it is known as debt financing. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid on a regular schedule.
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