Which of These Is Not an Advantage of Using Borrowed

question 23

Multiple Choice

Which of these is not an advantage of using borrowed funds to finance a business?

• A)Interest on borrowings is tax deductible.
• B)Borrowing can be used to boost returns to owners, as long as the return on the funds exceeds the cost of interest.
• C)Lenders do not dilute ownership interest in the business.
• D)Interest on borrowing is a legal commitment that must be met.

---

Definitions:

Tax Rates

Tax rates refer to the percentage at which an individual or corporation is taxed on their income or property.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, reflecting the percentage of additional income that is paid in taxes.

Average Tax Rate

The ratio of the total amount of taxes paid to the total income, showing the share of income that goes to taxes.

Income Tax System

The framework by which governments collect a percentage of income from individuals and businesses as tax, which varies according to earnings levels.