Which One of the Following Serves to Differentiate Debt from Equity

question 51

Multiple Choice

Which one of the following serves to differentiate debt from equity?

• A)Interest on debt may be deferred, but dividends are a legal liability and must be paid every year.
• B)Interest on debt is tax deductible while dividends to equity investors are not.
• C)Debt has a maturity date which is much shorter than the maturity period of equity.
• D)Debt holders are appointed while the board of directors elects equity holders.

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Definitions:

Carrying Cost

The total cost of holding inventory, including storage, handling, depreciation, and opportunity costs.

Reorder Point

The specific inventory level at which an order for more supply is initiated to replenish stock before it runs out.

Carrying Cost

The complete expense associated with maintaining stock, which encompasses costs for storage, management, decrease in value, and missed opportunities.

Order Costs

Expenses associated with placing orders for products or services, including costs involved in ordering and receiving goods.