GENERAL KNOWLEDGE

Detailed explanation-1: -Cost of equity is a return, a firm needs to pay to its equity shareholders to compensate the risk they undertake, by investing the amount in the firm. It is based on the expectation of the investors, hence this is the highest cost of capital.

Detailed explanation-2: -The cost of equity is higher because there an uncertainty of dividend and repayment of capital. Therefore equities are always considered as higher risk source of fund.

Detailed explanation-3: -The Cost of Equity is generally higher than the Cost of Debt since equity investors take on more risk when purchasing a company’s stock as opposed to a company’s bond.

Detailed explanation-4: -Preference Share is the Costliest Long-term Source of Finance. The costliest long term source of finance is Preference share capital or preferred stock capital. It is the source of the finance.