Merger Models Flashcards
1
Q
benefits of raising equity and what are the benefits of raising debt?
A
Debt: - cost of debt is tax-deductible and a tax shield is created
- Lender does not control business
Equity: - No repayment obligation with equity financing
- Less risk involved as you don’t owe fixed payments to lenders
2
Q
Why is debt cheaper than equity?
A
CAPM COE can’t be lower than debt - Lenders have first claim on assets
