Battlecard: Debt Is Cheaper Than Equity
Respond to the claim that debt is always preferable because its coupon is lower than equity's required return.
battlecard Use this when a decision-maker compares debt coupon with cost of equity and concludes debt is automatically better. Debt is cheaper than equity, so more debt should improve the capital structure. Debt can be cheaper at moderate levels because it is senior and tax-advantaged. The decision is whether the next dollar of debt still lowers the total cost after equity risk, lender spreads, covenants, refinancing risk, and lost flexibility reprice. The response agrees with the valid part of the objection, then moves the group from average coupon to marginal capital-structure trade-off. Do not sound anti-debt; the point is marginal…
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