Question

Advantages of debt financing over equity financing include that:

Multiple Choice

A) interest payments are optional.

B) debt financing does not require repayments.

C) interest payments are tax not deductible.

D) stockholders' control will not be diluted.

Answer 1

Debt financing offers the advantage of optional interest payments and no required repayments, maintaining control and ownership for the company.

Step-by-step explanation:

Debt financing has several advantages over equity financing:

1. Interest payments are optional: With debt financing, the borrower has the option to make interest payments or not, depending on the terms of the loan. This flexibility allows the borrower to conserve cash when needed.
2. Debt financing does not require repayments: Unlike equity financing, where the company has to repay the investors, debt financing involves borrowing money that needs to be repaid on a specific schedule. This allows the company to have more control over its operations without diluting the ownership or control of its stockholders.