Another common question, since an important part of investment banking revolves around arranging financing for companies, is, "Which is more expensive, debt or equity financing?" The answer is the cost of equity is generally considered to be higher for two main reasons. First, the interest cost of debt financing is tax-deductible. Secondly, common stock investors generally command higher premiums since they are not guaranteed returns and are in the worst position in the event of liquidation. You can possibly pick up some extra credit points by qualifying your answer by noting that increasing D/E ratios eventually results in higher costs for both debt and equity.