Question

Assignment 0 Saved Saved Help Save & Exit Which of the following is not an advantage of debt financing? Multiple Choice Interest is tax deductible. O The cost of borrowing may be lower than the return on equity. o The ownership interest of current stockholders is unchanged. o Debt financing often has no maturity date.

Answer 1

Debt financing often has no maturity date.

Advantages of Debt Financing

- Interest is Tax Deductible

- The cost of borrowing may be lower than the return of equity

- The ownership interest of current stockholders is unchanged.

Because interest that accrues on debt can be tax deductible and the actual cost of the borrowing is less because of that. When the organisation finance through debt than the ownership interest of current stockholders does not change because the debt holder does not involve in ownership of the organisation. Debt finance always have fixed maturity date with stated interest and principal amount.