Why is the cost of debt always less than the cost of equity?
submitted by Walter Seznick

renson

The cost of debt is lower because it's less risky. Lenders get priority if the company goes bankrupt, so they don't need as much return. Shareholders are riskier since they only get paid after debts are settled, so they want more reward, making the cost of equity higher.

velma and louise

Since debt is often secured and has fixed payments, it's less risky for lenders. They'd accept lower interest rates.

Equity investors take on more risk because they only get paid after all debts are covered, so they expect a higher return, which bumps up the cost of equity.