It is probably easier to estimate the cost of equity than it is to estimate the cost of debt.

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FALSE

It is probably easier to estimate the cost of debt than it is to estimate the cost of equity.

The components to estimate the cost of debt are easily available or observable.

The face value, the coupon rate, the time to maturity are all a known feature of the bond and the price of the bond is observable in the market. With these input it is just a matter of calculation to find the yield to maturity of the bond, which is nothing but the cost of debt

However, it is not so straight forward to estimate the cost of equity for the firm. The cost of equity depends on a lot of factors and assumptions such as the market risk, country risk, risk for investing in small companies, risk for investing in high growth companies etc.

jeff jeffy answered 2 years ago

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