Companies may find it attractive to issue debt instead of equity because:
A) interest on debt is tax deductible.
B) interest on debt has to be repaid by the shareholders, not the company.
C) interest on debt is always a cheaper form of finance than dividends on shares.
D) interest on debt is not locked in for repayment.

Question

Quizplus · Accepted Answer

Debt is sometimes preferable to equity because the interest on debt is tax deductible whereas dividends paid to equity holders are not.

Companies May Find It Attractive to Issue Debt Instead of Equity