Valuation · Intrinsic Valuation
Cost Of Equity Versus Debt
This question asks whether debt or equity is usually more expensive for a company to use as a source of financing.
Interview question
- Difficulty
- Easy
- Topic
- Valuation
- Subtopic
- Intrinsic Valuation
What this question trains
This problem tests a core valuation concept, the relative cost of different capital sources and why equity investors usually require a higher return than debt holders. Candidates need to understand how tax deductibility lowers the effective cost of debt, and how the different risk profiles of lenders and shareholders affect required returns. Interviewers ask this because it checks whether you can connect financing choices, capital structure, and investor risk to valuation and corporate finance judgment.