One advantage of debt financing over equity financing is:

Question

Quizplus · Accepted Answer

One advantage of debt financing over equity financing is that the interest paid on debt is tax deductible, which reduces the company's taxable income. This can make debt financing a more cost-effective option compared to equity financing, where dividends are not tax deductible. Option A, "Tax deductible dividends," is not a correct choice as dividends are not tax deductible in any form. Option C, "Tax deductible principal repayment," is also not correct as principal repayment is not tax deductible. Option D, "Tax free interest income," is not correct as interest income is taxable.

One Advantage of Debt Financing Over Equity Financing Is