Revisiting Cost of Capital: When Debt Becomes More Expensive Than Equity - A Case Study of Kingfisher Airlines

This paper examines whether the cost of debt is always lower than the cost of equity by analyzing standard financial models and applying them to real-world scenarios, including the downfall of Kingfisher Airlines. Using both mathematical reasoning and empirical evidence, it demonstrates that in periods of extreme leverage and financial distress, the cost of debt can exceed that of equity. The paper also explores how credit ratings, tax shields, and market conditions influence capital costs and affect a firm's weighted average cost of capital (WACC).