Which statement best describes the major drawback to the use of debt financing?
A) Debt financing gives common shareholders a voice in company management.
B) Debt financing is a form of permanent financing.
C) The interest paid in debt financing is not tax-deductible.
D) Financial risk is always a possibility with debt financing.

Question

Quizplus · Accepted Answer

The major drawback to the use of debt financing is that financial risk is always a possibility with debt financing. This means that if a company is unable to make their debt payments, they run the risk of defaulting on the loan and potentially going bankrupt. Additionally, taking on too much debt can negatively affect a company's credit rating and make it more difficult to secure future financing.

Which Statement Best Describes the Major Drawback to the Use