The Major Real-World Benefit of Debt Is That Interest Payments

question 70

Multiple Choice

The major real-world benefit of debt is that interest payments are:

• A)made after tax considerations.
• B)a tax-deductible expense.
• C)always less than 10% of the firm's profit.
• D)smaller than the dividend payments.

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Definitions:

Equity Method

An accounting technique used to record investments in which the investor has significant influence over the investee but does not have full control.

Carrying Value

The book value of an asset or liability on a company's balance sheet, calculated as the asset's original cost minus accumulated depreciation, amortization, or impairment charges.

Investment Income

Income earned from investments such as dividends on stocks, interest on bonds, or rental income from property.

Equity Method

The equity method is an accounting technique used for recording investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the investing company’s share of the investee’s profits or losses.