Debt capital involves a stated legal obligation on the part of the company to pay interest and repay the principal on the borrowing. Equity entails no such obligation.
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2.1. Taxes and the Cost of Capital the before-tax cost of debt is 10 percent, whereas the after-tax cost of debt is (€0.6 million)/(€10 million) = 6 percent.
Estimating the cost of common equity capital is more challenging than estimating the cost of debt capital. <span>Debt capital involves a stated legal obligation on the part of the company to pay interest and repay the principal on the borrowing. Equity entails no such obligation. Estimating the cost of conventional preferred equity is rather straightforward because the dividend is generally stated and fixed, but estimating the cost of common equity is challengin
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