Should company use Debt or Capital Stock

In this case, "costs" mentioned here is the cost can be measured for the mobilization of funding for the operation of the business. With debt, that is s interest of debt which businesses must pay. With equity, cost of capital is understood as the right to sufficient income to satisfy shareholders when they decide to contribute capital to the company. (Charles W.L.Hill, 2002)
For example, if you run a small business and need funding of about $ 40,000, you can loan amount of $ 40,000 with interest rate of 10% in bank or you can sell 25% shares of your company to neighbourhood with $ 40,000.
Assume the following year, your business can generate operating profit was $ 20,000. If you decide to loan in bank with interest expense (also referred to as the cost of debt financing) would be $ 4,000, remain your profit with $ 16,000. Conversely, if you used the equity financing, which means you have no debt and of course there is no interest expense but you can only hold 75% of the profits of the business (25% belonging owned by your neighbor). Therefore, now your profit is only $ 15,000 (75% x $ 20,000).
From this example, you may see debt is cheaper than equity so very easy to understand when the shareholders of the company decide to issue debt rather than equity. Tax is also a factor help debt issuing situation becomes better (Hymer, Stephen H. , 1960). the benefits of debt financing with fixed interest rates sometimes can be a disadvantage. Because it is a fixed cost financing, whether your business activity good, more income or even losing money, the enterprise is to ensure the payment of interest and repayment schedule original maturity, so an debt increasing of the enterprise also means increased financial risk (Buckley, A. 2007).
About a company is expected to business well, debt financing can be used frequently at lower cost than equity financing. However, if the company cannot operate well to create a large amount of cash, the interest expense can be a burden (Charles W.L.Hill, 2002).
Evidently, the enterprise can never be 100% sure about the amount of income in the future (although they could have reasonably expected) and when the future income of the enterprise as unstable, increasing risk. Thus, firms in low-risk business, with stable cash flows often use debt more than firms in sectors more risk (Buckley, A., 2007).

Reference
Charles W.L.Hill, (2002) “International Business: Competing in global market”, The Magraw Hill Companies. United States.
Buckley, A. (2007) Multinational Finance, Pearson