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Which of the capital structure components are considered the riskiest and which has the lowest risk?...

Which of the capital structure components are considered the riskiest and which has the lowest risk? Explain.

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Expert Solution

from the shareholders perspective , equity capital is always considered the riskiest capital structure because it is having no benefits in form of deduction and it is also so having a very high cost of equity.

Debt capital will be having the lowest risk because it is already secured with the fixed payment from the company so it will help the individual subscriber in order to earn a regular interest and it will also help in interest tax deduction on the part of the company.

When we are looking from the company perspective, then riskiest form of capital structure will be debt capital because it is having fixed cost associated in form of interest and the least risky capital structure will be equity capital because it is not having any mandatory payment.

jeff jeffy answered 2 years ago
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