The disadvantage of debt financing is that interest on debt is tax-deductible.

Question

Quizplus · Accepted Answer

The statement is incorrect. The disadvantage of debt financing is that the company has to pay interest on the debt, which increases their financial obligations and can lead to financial distress if the company is unable to pay back the debt. Additionally, taking on too much debt can negatively impact a company's credit rating, making it more difficult and expensive to obtain future financing. However, the interest paid on debt is tax-deductible, which can be seen as an advantage for some companies.

The Disadvantage of Debt Financing Is That Interest on Debt