Which of the following is true of the advantages of raising corporate debt through bank loans?
A) Capital gains on debt are not taxed.
B) Costs associated with monitoring debt are low.
C) Equity capital costs are low.
D) Corporations are equally inclined to use debt and equity.
E) The threat of potential bankruptcy is high in equity financing compared to bank loans.

Question

Quizplus · Accepted Answer

Bank loans typically have lower monitoring costs compared to issuing bonds or equity, as banks have an ongoing relationship with the borrower and are typically involved in the management of the loan.

Answer: E 
 Bank loans typically have lower bankruptcy risk than equity financing, as the borrower is required to make regular interest and principal payments and has a set repayment schedule. Equity financing, on the other hand, does not have a required repayment schedule and the company's stock value is subject to market fluctuations.

Which of the Following Is True of the Advantages of Raising