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2. Explain: Why the cost of debt is likely to be lower than that of equity [Hint : (i) risk & legal rights (ii) tax]

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2. Explain: Why the cost of debt is likely to be lower than that of equity [Hint : (i) risk \& legal rights (ii) tax] Why the curves in the graph of slide 16 are shaped as they are Why does a firm not usepll debt financing since it is cheaper Why a graph of the value of the firm might be inverted U-shaped (hump-shaped) The possible reasons for financial hierarchy (pecking order) theory

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