From the Point of View of the Business, Which of the Following

question 49

Multiple Choice

From the point of view of the business, which of the following is an advantage of using long-term debt rather than equity in financing?
I. Interest is tax deductible.
II. It does not dilute the control of existing owners.
III. Creditors do not share in any excess profits of the entity.
IV. Interest payments are a fixed commitment regardless of profits.

• A) I, II, III, IV
• B) I, IV
• C) I, II, III
• D) I, III

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Definitions:

Projects

Planned sets of interrelated tasks to be executed over a fixed period and within certain cost and other limitations.

Effective Annual Rate

An interest rate expressed as if it were compounded once per year, showing the full amount of interest an investment earns annually.

Annual Nominal Rate

The interest rate stated on a loan or investment agreement, not adjusted for inflation or the compounding of interest.

Investment Opportunities

Potential placements of capital in projects or assets that could yield financial returns in the future.