Practice question · Select all that apply
Which are advantages of debt financing over equity financing?
Hints
- The advantages concern tax treatment and ownership.
- Two of the listed items are actually advantages of the other source.
Show the answer
- C. Interest is tax-deductible, creating a tax shield
- D. No ownership dilution for existing shareholders
Why
Debt offers tax shields and avoids dilution, but at the cost of fixed obligations and higher distress risk. Options 3 and 4 are equity's advantages, not debt's.
Practise Liabilities and Equity
The app has 5 more questions on this lesson, and keeps your place in the course. Business I is free to start.
More questions on Liabilities and Equity
- Current liability, non-current liability, or equity?
- Match each right-side item to its nature.
- Retained earnings sit at 4 million and the bank account holds 200,000. Where did the rest go?
- A firm has been profitable for years but has never paid a dividend. Where does all that profit sit?
- A firm receives €12,000 for a year of service not yet delivered. Why is unearned revenue a liability when the…
- Order the steps of issuing a corporate bond.
- A firm has total equity 300 and total liabilities 600. Estimate the debt-to-equity ratio.