The fact that interest is tax-deductible makes corporate debt less expensive than common stock or preferred stock.

Question

Quizplus · Accepted Answer

Interest on corporate debt is tax-deductible, which means that the borrowing company can deduct the interest payments from their taxable income. This reduces the company's overall tax liability and makes the cost of debt financing cheaper than the cost of equity financing (such as common stock or preferred stock) which is not tax-deductible.

The Fact That Interest Is Tax-Deductible Makes Corporate Debt Less