Debt is generally the least expensive source of capital. This is primarily due to ________.
A) the fixed interest payments
B) the priority of claims on assets and earnings in the event of liquidation
C) the tax deductibility of interest payments
D) the secured nature of a debt obligation

Question

Quizplus · Accepted Answer

The tax deductibility of interest payments is the reason why debt is generally the least expensive source of capital. Interest payments made on debt are tax deductible which reduces the cost of debt for the borrower. This tax advantage makes debt an attractive option for companies to finance their operations or growth as compared to equity financing which does not offer any tax advantages.

Debt Is Generally the Least Expensive Source of Capital