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The cost of debt is lower than the cost of equity for 2 reasons:
1) The interest on the debt is tax deductible, i.e. there is a tax shield.
2) Debt is senior when compared to equity, i.e. in case of company liquidation, the debt holders are to be paid before the equity holders.
the cost of equity is higher due to the fact that investors doesn't have that much due diligence or insight which enables them to check & confirm the company's financial health as compared to banks therefore due to this risk the investors asks for more return which is cost for firm
