Which of the statements is/are wrong?(Баллов: 2)Cost of equity are dividends.Cost of debt is the interest rate.Paid interest on the loan is part of the enterprise's cost. It reduces profit as a basis for calculating the income tax.The cost of equity for the enterprise is lower than the cost of debt.Financial structure reflects the total capital, which finances the company´s assets.Issued shares of company can be ordinary or preference.
Question
Which of the statements is/are wrong?(Баллов: 2)Cost of equity are dividends.Cost of debt is the interest rate.Paid interest on the loan is part of the enterprise's cost. It reduces profit as a basis for calculating the income tax.The cost of equity for the enterprise is lower than the cost of debt.Financial structure reflects the total capital, which finances the company´s assets.Issued shares of company can be ordinary or preference.
Solution
The statement "The cost of equity for the enterprise is lower than the cost of debt" is incorrect. Generally, the cost of equity is higher than the cost of debt. This is because equity investors take on more risk than debt holders, as they are last in line to receive any remaining assets if a company goes bankrupt. Therefore, they require a higher return for their investment.
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