أنشئ حسابًا أو سجّل الدخول للانضمام إلى مجتمعك المهني.
Because of the debt holders are interested in the cash flow of the project to ensure that debt service payment of principal and interest takes place whereas investors in equity look to the returns of the project and are prepared to accept the risk if the upside potential is attractive. Exit strategies are important considerations for these investors.
Just to give a brief answer. Debt financing is mostly less costlier than equity financing, because debt is subject to fixed mark-up/interest, while the remainder of net project goes to equity holders. The decision of this capital model is decided by Arbitrage Model comparing the debt and equity financing costs. Further, debt also serves as short term support and exit and entry is easy.
There are number of reasons for giving priority debt over equity. But major reason is availablity debt bit easy, lower rate of interest, no voting power given to debt issuers, and risk profile of company also need to take into account.
Reason is simple because of availability of debt at lower cost than Equity, this is the reason the cost of Equity is always higher because of higher risk involved .
Investor in equity always needs higher return because of higher risk.
