Why is the post-tax cost of debt generally much lower than the cost of equity for a company?

Test yourself: pick an answer

• A)Because equity investors demand fixed returns while debt returns fluctuate
• B)Because debt is inherently less risky for the investor and interest payments are tax-deductible for the company
• C)Because dividends are tax-deductible while interest payments are paid from retained earnings
• D)Because debt holders have the lowest priority in the event of company liquidation