4 ms·
What does this mean: > Debt is cheaper than equity You have to pay interest on a debt, not so with equity. I am having a hard time relating your military and
by asmithmd1 9y ago
What does this mean:
> Debt is cheaper than equity
You have to pay interest on a debt, not so with equity. I am having a hard time relating your military and medical analogies to Bain/Vornado buying Toys-R-Us and then saddling it with $Bs in debt.
- samfisher83 9y agoIts a finance thing. You will expect a greater rate of return from equity because its more risk than debt. For example a company is worth $10 $5 equity and $5 dollars debt. If company value goes to $20 the value of equity has tripled, but debt is still worth $5. However if company value goes to $5 well equity goes to 0, but debt is still worth $5. Since you are taking more risk with equity you need a greater rate of return on equity. So when equity is priced it needs to have a better return than debt for the added risk.
- JBReefer 9y agoEquity financing is taxable, debt is not. It has some weird results.