Which of the following is NOT a reason why debt capital is considered to be the least risky source of capital?
A) It does not normally have to be repaid at a specific future date.
B) It has a strong legal position.
C) It has a high priority claim against assets and earnings.
D) It is a low cost source of capital because interest payments are tax deductible.

Question

Quizplus · Accepted Answer

Debt capital is considered to be less risky because it has a strong legal position and a high priority claim against assets and earnings, making it more likely to be repaid even in the event of financial distress. Additionally, interest payments on debt are tax deductible, making it a desirable and low-cost source of capital. However, debt capital does have to be repaid at a specific future date, which is a key characteristic of debt financing. Therefore, choice A, which suggests that debt capital does not have to be repaid at a specific future date, is not a correct reason why debt capital is considered to be the least risky source of capital.

Which of the Following Is NOT a Reason Why Debt