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:

Unionized Employees

Workers who are members of a labor union, which represents their interests in negotiations with employers.

Nonunionized Employees

Workers who are not members of a labor union and do not enjoy the collective bargaining and representation benefits provided by union membership.

Labor Costs

The total expenses associated with employing labor, including wages, benefits, and taxes.

Labor Movement

A collective organizational effort aiming to improve workers' rights, conditions, and wages through unions and other labor associations.