Which of the Following Is a Benefit of Using Debt

question 13

Multiple Choice

Which of the following is a benefit of using debt over equity as a source of long-term financing?

• A)Interest on debt is tax deductible.
• B)An increase in the use of debt makes a company less risky.
• C)Debt financing may contain covenants that help management manage the company.
• D)Interest payments on debt may be deferred.

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Definitions:

Deferred Tax Liabilities

Future tax obligations that arise due to temporary differences between the book value and tax value of assets and liabilities.

Deferred Tax Assets

Financial items on the balance sheet representing taxes paid or carried forward but not yet realized on the income statement.

Permanent Difference

A discrepancy between the tax treatment and accounting treatment of transactions and events that will not reverse in the future.

IFRS Rules

A specific set of standards and guidelines established under the IFRS framework for financial reporting and accounting.