Which of the Following Is a Major Advantage of Debt

question 48

Multiple Choice

Which of the following is a major advantage of debt financing?

• A)Market interest rates on debt normally do not exceed 5 percent, which is much lower than market rates associated with common stock.
• B)Interest payments on debt are a tax-deductible expense to the issuing firm.
• C)Generally, interest payments on debt are based on the firm's net income, which means the interest is not paid unless the firm has enough income to cover the payments.
• D)Normally the market values of bonds remain fairly stable, whereas common stock prices change substantially every day.
• E)Firms that use great amounts of debt do not pay much in corporate taxes.

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Definitions:

Accounting Period

A specific duration of time used for financial reporting purposes, typically a quarter or a year.

Revenue Balances

Revenue Balances relate to the residue amounts retained from earned revenues after covering all operational expenses and costs.

Expense Balances

The remaining amounts in an organization's expense accounts after all expenditures for the accounting period have been accounted for.

Adjusted Trial Balance

A listing of all company accounts that will appear on the financial statements after year-end adjustments are made.