A disadvantage of debt for long-term financing is that the interest expense incurred on debt reduces net income.

Question

Quizplus · Accepted Answer

Interest expense is one of the costs of borrowing money through debt, and it represents a reduction in the company's profits (net income). This is because interest payments are deducted from revenues to determine the company's taxable income, which then affects its net income. Therefore, the more debt a company has, the higher its interest expense and the lower its net income.

A Disadvantage of Debt for Long-Term Financing Is That the Interest