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

Question

Quizplus · Accepted Answer

Interest payments on long-term debt are tax-deductible, making it less expensive for a firm to use debt in its capital structure compared to equity capital.

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