Which of the following is a major difference between debt financing and equity financing?
A) Equity financing has a specific maturity period, whereas debt financing usually has no specific maturity period.
B) Debt financing is not linked to organizational performance, unlike equity financing.
C) Equity holders have primary claims on assets unlike debt financiers.
D) Payments to equity holders reduce taxable income, whereas debt payments are not tax deductible.
E) Debt financing is used to cover long-term expenses, whereas equity financing is used for current expenses.

Question

Quizplus · Accepted Answer

A)The cost of debt financing is usually a recurring cost and usually fixed. Debt obligations must be repaid, regardless of whether the company is profitable or not. Based on management's discretion and if a company is profitable, shareholders may receive dividends after creditors have been paid. However, a company is not required to pay dividends.
B)The cost of debt financing is usually a recurring cost and usually fixed. Debt obligations must be repaid, regardless of whether the company is profitable or not. Based on management's discretion and if a company is profitable, shareholders may receive dividends after creditors have been paid. However, a company is not required to pay dividends.
C)The cost of debt financing is usually a recurring cost and usually fixed. Debt obligations must be repaid, regardless of whether the company is profitable or not. Based on management's discretion and if a company is profitable, shareholders may receive dividends after creditors have been paid. However, a company is not required to pay dividends.
D)The cost of debt financing is usually a recurring cost and usually fixed. Debt obligations must be repaid, regardless of whether the company is profitable or not. Based on management's discretion and if a company is profitable, shareholders may receive dividends after creditors have been paid. However, a company is not required to pay dividends.
E)The cost of debt financing is usually a recurring cost and usually fixed. Debt obligations must be repaid, regardless of whether the company is profitable or not. Based on management's discretion and if a company is profitable, shareholders may receive dividends after creditors have been paid. However, a company is not required to pay dividends.

Which of the Following Is a Major Difference Between Debt