The Risk of the Debt Capital Is Less Than That

question 3

Multiple Choice

The risk of the debt capital is less than that of other long-term contributors of capital because

• A) they have a higher priority of claim against any earnings or assets available for payment.
• B) they have a far stronger legal pressure against the company to make payment than do preferred and common stockholders.
• C) the tax-deductibility of interest payments lowers the debt cost to the firm substantially.
• D) all of the above.

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Definitions:

Specialization

The process of focusing on and becoming an expert in a particular field or task, potentially leading to increased efficiency and productivity.

Particular Product

A specific good or service that is distinct among others due to unique characteristics or qualities.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision or taking an action.

Moving From Point

The process of going from one position or condition to another, often used in discussions about changes in economic indicators or market positions.