Which of the Following Is Not a Financial Advantage to Companies

question 29

Multiple Choice

Which of the following is not a financial advantage to companies using debt?

• A) Debt is paid back in "cheaper" dollars during inflationary periods.
• B) Bond holders have no control over the actions of management.
• C) The cost of debt can lower the weighted overall cost of capital.
• D) Interest payments are tax deductible.

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Definitions:

Substitution Effect

The economic principle that as the price of a good increases, consumers will replace it with cheaper alternatives, whereas if the price decreases, the good will become more preferable.

Output Effect

The effect that changes in the price level have on production due to the incentive for producers to increase supply when the price is higher.

Profit-maximizing

The method a company uses to identify the pricing and production volume that maximizes profit.

Marginal Product

The additional output that is produced by using one more unit of a factor of production, all else held constant.