The inexpensive 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

Creditors have a higher position in the priority of claims, which makes long-term debt less risky and therefore less expensive compared to equity.

The Inexpensive Nature of Long-Term Debt in a Firm's Capital