Borrower's Cost of Debt -
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Borrower’s Cost of Debt

While interest rates represent interest income to the lender, they constitute a cost of debt to the borrower. Companies weigh the cost of borrowing against the cost of equity, such as dividend payments, to determine which source of funding will be the least expensive. Since most companies fund their capital by either taking on debt and/or issuing equity, the cost of the capital is evaluated to achieve an optimal capital structure.

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