Debt Is Generally the Least Expensive Source of Capital

question 35

Multiple Choice

Debt is generally the least expensive source of capital. This is primarily due to ________.

• A) the fixed interest payments
• B) the priority of claims on assets and earnings in the event of liquidation
• C) the tax deductibility of interest payments
• D) the secured nature of a debt obligation

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Definitions:

Non-competition Clause

A provision in a contract that prohibits a party from entering into competition with another party for a certain period of time and within a specific geographical area.

Liquidated Damages

A predetermined amount of money that must be paid as compensation for failure to perform under a contract.

Penalty Unenforceability

The legal concept that a penalty clause within a contract may not be enforceable if it is deemed excessively punitive rather than a genuine pre-estimate of loss.

Liquidated Damages

A predetermined amount of money that must be paid as compensation for failure to perform certain obligations of a contract.