Consider a company that has both debt and equity. Why is the cost of equity always greater than their after-tax cost of debt? The statement in the question is false. The cost of debt is always greater than the cost of equity. Since debt has a senior claim, debt is a safer investment. Since equity has a senior claim, debt is a safer investment. Due to the tax-deductibility of interest payments, debt is riskier than equity. Due to government subsidies, equity is always a better investment, hence a higher required return