The lower risk nature of long-term debt in a firm's capital structure is due to the fact that
A) dividend payments are tax-deductible.
B) equity capital has a fixed return.
C) creditors have a higher position in the priority of claims.
D) the equity holders are the true owners of the firm.

Question

Quizplus · Accepted Answer

Long-term debt holders have a higher priority claim on a firm's assets in the event of bankruptcy or liquidation, making their investment less risky than equity holders. Dividend payments are not tax-deductible, and equity capital does not have a fixed return. While equity holders are true owners of the firm, their investment carries more risk than long-term debt.

The Lower Risk Nature of Long-Term Debt in a Firm's