If a Corporation Issues Debt Instead of Common Stock to Finance

question 65

Multiple Choice

If a corporation issues debt instead of common stock to finance the purchase of property, then the corporation has

• A)a disadvantage of higher tax payments because dividends are a bigger deduction than interest.
• B)no ability to avoid interest payments from the debt issuance under any circumstances.
• C)required dividend payments that are usually double-taxed.
• D)a higher earnings per share.

---

Definitions:

Barriers to Entry

Obstacles that prevent new competitors from easily entering an industry or area of business.

Monopolistic Competition

A market structure where many companies sell products that are similar but not identical, allowing them to compete on factors other than price.

Imperfect Competition

Imperfect competition describes a market structure where the conditions necessary for perfect competition are not met, leading to firms having some control over market prices.

Monopoly

A market structure characterized by a single seller who has exclusive control over a product or service, potentially leading to higher prices and reduced quality.