Which of the following is a disadvantage of debt financing?
A) The firm is required to make fixed payments to the creditors.
B) Interest payments on debts are tax deductible.
C) Additional funds can be acquired without requiring existing stock holders to invest more of their money.
D) Using debt can increase the return on equity to owners during periods of strong earnings.

Question

Which of the following is a disadvantage of debt financing?
A) The firm is required to make fixed payments to the creditors.
B) Interest payments on debts are tax­ deductible.
C) Additional funds can be acquired without requiring existing stock holders to invest more of their money.
D) Using debt can increase the return on equity to owners during periods of strong earnings.

Quizplus · Accepted Answer

The disadvantage of debt financing is that the firm is required to make fixed payments to the creditors, which can be a burden on the cash flow of the company, especially during periods of low earnings.

Which of the Following Is a Disadvantage of Debt Financing