Which Statement Describes the Major Drawback to the Use of Debt

question 15

Multiple Choice

Which statement describes the major drawback to the use of debt financing?

• A)The interest paid is not tax-deductible.
• B)Debt financing is a form of permanent financing.
• C)Debt financing gives common stockholders a voice in company management.
• D)Financial risk is always a possibility with debt financing.
• E)Dividends are paid from after-tax income.

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Definitions:

Federal Court Jurisdiction

The authority granted to federal courts to hear and decide cases based on subject matter or parties involved.

Commercial Activity

Business operations or actions undertaken for the purpose of generating profit.

Expropriation

The act of a government taking privately owned property to be used for public purposes, usually with compensation to the owner.

Public Purpose

Concise definition: The rationale behind legislative actions or government spending which must benefit the public at large, rather than specific individuals or groups.