Which of the following is a difference between debt and equity capital?
A) Debt capital does not require periodic payments, whereas equity capital requires period payments.
B) Debt capital requires returns in proportion to profits, whereas equity capital requires a fixed rate of return.
C) Debt capital provides a tax shield, whereas equity capital does not provide a tax shield.
D) Debt capital affects operating leverage, whereas equity capital affects financial leverage.

Question

Quizplus · Accepted Answer

Debt capital provides a tax shield as the interest paid on debt is tax-deductible, whereas equity capital does not provide any tax benefits. The other options listed are incorrect.

Which of the Following Is a Difference Between Debt and Equity