Which of the Following Best Explains the Political Attractiveness of Debt

question 39

Multiple Choice

Which of the following best explains the political attractiveness of debt financing relative to taxation?

• A) Debt financing pushes the visible cost of government into the future.
• B) Debt financing exposes the current costs of government programs; taxes do not.
• C) Debt financing reduces the attractiveness of special-interest spending.
• D) Taxes allow politicians to supply voters with immediate benefits without having to impose a visible cost.

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Definitions:

Sustainable Rates Growth

The peak growth rate a firm can achieve in its earnings without resorting to more debt financing or selling additional shares.

External Funding Needs

The amount of money a company needs to raise from outside sources to finance its operations or growth plans.

Negative External Financing

A situation where a company is reducing its external borrowing and financing activities, possibly indicating a shift towards internal funding methods.

External Financing Need

The amount of funding a firm requires from external sources to finance its planned investment or business activities beyond what is generated internally.