Debt is not a free resource because
A)The use of debt funds is restricted as designated by the debt instrument.
B)Companies must pay interest on the borrowings.
C)Companies must restrict cash flow until the debt is repaid.
D)Companies do not pay interest on the borrowings.

Question

Quizplus · Accepted Answer

Debt is not a free resource because companies must pay interest on the borrowings. Interest is the cost of borrowing money, and companies must factor this cost into their financial decisions when using debt funds. The use of debt funds is also restricted as designated by the debt instrument, and companies must restrict cash flow until the debt is repaid, but these are not the most significant reasons why debt is not a free resource.

Debt Is Not a Free Resource Because