Heavy use of long-term debt can be of benefit to a firm.

Question

Quizplus · Accepted Answer

Heavy use of long-term debt can lower a firm's cost of capital, as debt is typically cheaper than equity financing due to the tax-deductibility of interest payments. This can increase a firm's profitability and return on equity. However, it also increases financial risk, as the firm must continue to make interest and principal payments even during periods of financial difficulty. Therefore, the appropriate level of debt for a firm depends on its specific situation and goals.

Heavy Use of Long-Term Debt Can Be of Benefit to a Firm