The Inexpensive Nature of Long-Term Debt in a Firm's Capital

question 20

Multiple Choice

The inexpensive nature of long-term debt in a firm's capital structure is partly because ________.

• A)the equity holders are the true owners of the firm
• B)equity capital has a fixed return
• C)creditors have a higher position in the priority of claims
• D)dividend payments are tax-deductible

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Definitions:

Member of Household Test

A criteria used to determine if someone is a qualifying relative for tax purposes, considering factors like relationship, income, and support.

Qualifying Relatives

Individuals who meet certain IRS criteria allowing a taxpayer to claim them as dependents for tax purposes, potentially reducing taxable income.

Head of Household Status

A tax filing status available to unmarried taxpayers who provide a home for certain qualifying persons and pay more than half of home maintenance expenses.

Married

A marital status indicating that two individuals are legally united in marriage, influencing their filing status and tax considerations.