Which of the following is an advantage of debt financing?
A) Interest charges on debt is very minimal.
B) Interest charges on debt are tax deductible.
C) Interest charges on debt are based on the net income of the firm.
D) The higher the interest charges, the lower the bankruptcy costs.
E) Firms that are entirely debt financed have to pay very minimal taxes.

Question

Quizplus · Accepted Answer

Interest charges on debt are tax deductible, which can reduce the overall tax burden for the firm. This makes debt financing more attractive compared to equity financing, which does not offer any tax benefits.

Which of the Following Is an Advantage of Debt Financing