Which of the following is one of the advantages of debt financing versus equity financing?
A) interest does not have to be paid unless the company is profitable
B) interest expenses can be deducted from company profits, thereby lowering the company's tax liability
C) company profits can be distributed to bondholders in lieu of interest payments
D) the funds do not need to be repaid, thus providing financial flexibility for the company

Question

Quizplus · Accepted Answer

One advantage of debt financing over equity financing is that interest expenses can be deducted from company profits, thereby lowering the company's tax liability. This is not the case with equity financing, as dividends paid to shareholders are not tax deductible.

Which of the Following Is One of the Advantages of Debt