Although the use of debt provides tax benefits to the firm,debt also puts pressure on the firms to:
A)meet interest and principal payments which,if not met,can put the company into financial distress.
B)make dividend payments which if not met can put the company into financial distress.
C)meet both interest and dividend payments which when met increase the firm cash flow.
D)meet increased tax payments thereby increasing firm value.
E)None of the above.

Question

Quizplus · Accepted Answer

Debt requires the firm to make interest and principal payments, which must be met to avoid financial distress. Failure to meet these payments can also harm the company's credit rating and ability to borrow in the future. While debt does provide tax benefits to the firm, it also adds financial pressure and risk. Choices B, C, and D are incorrect as they do not accurately describe the effects of debt on the firm.

Although the Use of Debt Provides Tax Benefits to the Firm,debt