Which of the following does not represent a major difference between debt and equity?
A) Creditors do not have voting power as stockholders do.
B) Payment on interest on debt in considered an expense, while payment of dividends is not.
C) Unpaid debt is a liability of the firm, and if not paid, can result in liquidation of the firm. Unpaid dividends cannot.
D) One of the costs of issuing equity is the possibility of financial distress, while no financial distress is associated with debt.

Question

Quizplus · Accepted Answer

The major difference between debt and equity incorrectly stated here is D. Issuing equity does not lead to financial distress, whereas taking on too much debt can lead to financial distress due to the obligation to make interest payments regardless of the firm's financial situation.

Which of the Following Does Not Represent a Major Difference