Which Statement Best Describes the Major Drawback to the Use

question 47

Multiple Choice

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

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

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.

Acid-Test Ratio

A financial metric that measures a company's ability to pay its short-term liabilities with its most liquid assets, excluding inventory.

Current Assets

Assets that a company expects to convert into cash, sell, or consume within one year or within the operating cycle, including cash, inventory, and accounts receivable.

Accounts Receivable Turnover

A financial ratio that measures how many times a company collects its average accounts receivable in a period.