Here it can be seen that the cost of equity is more than the cost of debt. After taking into consideration the tax aspects the cost of debt reduces event and it is less than the half value of cost of equity. The reason behind this is that equity is more risky than the debt for the investors. Debt holders have the first right in the assets of the firm in case of liquidation and the equity holders have the residual rights. This means that equity holders receive after all the debt holders have been paid off. In case of liquidation debt holders will first receive their share and then the equity holders. If after paying off the debt holders there is nothing left then the equity holder will receive nothing. Also the dividends are not tax deductible as is the case with interest expense，Since risk and return go hand in hand, for example, if the asset is more risky then it should have more rate of return the cost of equity is more than the cost of debt.