Rosella Is Financial Manager Who Is Comparing the Effects of Debt

question 306

Multiple Choice

Rosella is financial manager who is comparing the effects of debt and equity financing. She finds that

• A) debt financing affects management control, whereas equity financing does not.
• B) debt financing makes a regular claim on income, whereas equity financing does not.
• C) debt financing involves no fixed deadlines, whereas equity financing does.
• D) debt financing does not affect management's flexibility, whereas equity financing does.
• E) neither debt financing nor equity financing is tax deductible.

---

Definitions:

Variable Costs

Costs that vary directly with the level of production or volume of output, which includes expenses like raw materials and labor directly involved in production.

Fixed Costs

Expenses that do not change with changes in production level or sales volume.

Controllable Costs

Expenses that can be influenced or managed by a specific manager or department within a company.

Noncontrollable Costs

Costs that cannot be directly controlled or influenced by management decisions in the short term.