Rosella is financial manager who is comparing the effects of debt and equity financing. She finds that
A) debt financing affects management control, whereas equity financing does not.
B) debt financing makes a regular claim on income, whereas equity financing does not.
C) debt financing involves no fixed deadlines, whereas equity financing does.
D) debt financing does not affect management's flexibility, whereas equity financing does.
E) neither debt financing nor equity financing is tax deductible.

Question

Quizplus · Accepted Answer

Debt financing involves regular payments of interest and principal, which make a regular claim on a company's income. On the other hand, equity financing does not involve such regular payments and only gives investors a share in the company's future profits. Therefore, option B is the correct choice. The other options are either incorrect or incomplete.

Rosella Is Financial Manager Who Is Comparing the Effects of Debt