Which of These Is a Disadvantage to Shareholders of Using

question 45

Multiple Choice

Which of these is a disadvantage to shareholders of using long-term debt rather than equity?

• A) Interest is tax deductible
• B) Interest payments must be made on time regardless of a reduction in profitability
• C) Lenders do not share in excess profits
• D) Lenders do not have voting rights

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Definitions:

Communism

Economic system in which all property would be shared equally by the people of a community under the direction of a strong central government.

Pure Competition

A market structure characterized by a large number of small firms, a homogeneous product, free entry and exit, and perfect information, leading to firms being price takers.

Tax Exemptions

Deductions from taxable income or specific revenues not subject to taxation, often granted to encourage certain activities or investments.

Patent

Guarantee to an inventor exclusive rights to an invention for 17 years.