From the point of view of the business, which of these is an advantage of using long-term debt rather than equity in financing?
I. It does not dilute the control of existing owners.
II. Creditors do not share in any excess profits of the entity.
III. Interest payments are a fixed commitment regardless of profits.
IV Interest is tax deductible.
A) I, II, III, IV
B) I, IV
C) I, II, IV
D) I

Question

Quizplus · Accepted Answer

Long-term debt has the advantage of not diluting control of existing owners (I), since the lenders do not have ownership or voting rights. Creditors do not share in any excess profits of the entity (II), as profits are only distributed among shareholders. Interest payments are a fixed commitment regardless of profits (III), but this can be an advantage for the business in terms of budgeting and planning. Finally, interest payments on long-term debt are tax-deductible (IV), which reduces the overall cost of financing for the business.

From the Point of View of the Business, Which of These