UGC NET COMMERCE January 2017(Paper-II) Q33
0. Debt financing is a cheaper source of finance because of
- Option : C
- Explanation : Cost of capital means interest on debts or dividend on shares. Debt is a cheaper source of finance in comparison to equity capital because rate of interest is lower than the return expected by equity shareholders and the tax deductibility of interest further reduces the cost of debt. The preference share capital is also cheaper than equity capital, but not as cheap as debt. Thus, optimum capital structure should include sufficient amount of debt since it is the cheapest source of finance.
