Debt finance is cheaper than equity finance (rd re), because equity is more risky than debt. When the d / e ratio is considered too high, both equity-holders and debt-holders will start demanding higher returns so that the cost of capital of the firm will rise. The value of a firm is the same regardless of whether it finances itself with debt or equity.
Debt finance is cheaper than equity finance (rd re), because equity is more risky than debt. When the d / e ratio is considered too high, both equity-holders and debt-holders will start dem…