Why might a firm opt for long-term debt instead of equity?

Question

Quizplus · Accepted Answer

The impact of U.S. tax laws can make long-term debt a more attractive option than equity because interest payments on debt are tax-deductible, while dividend payments to shareholders are not. This can result in a lower cost of capital for the firm if they opt for long-term debt. Option B is incorrect as debt is not always cheaper than equity, and option C is also incorrect as equity is not always cheaper than debt.

Why Might a Firm Opt for Long-Term Debt Instead of Equity