Although the use of debt provides tax benefits to the firm,debt also puts pressure on the firms to:
A)meet interest and principal payments which, if not met, can put the company into financial distress.
B)make dividend payments which, if not met, can put the company into financial distress.
C)meet both interest and dividend payments which, when met, increase the firm's cash flow.
D)meet increased tax payments thereby increasing firm value.
E)None of the above.

Question

Quizplus · Accepted Answer

Debt requires regular payments of interest and principal, which can become difficult to meet if the company experiences financial difficulties. This can ultimately lead to financial distress or bankruptcy if payments are not made. None of the other options (B, C, D, E) are correct as they do not accurately describe the pressure that debt puts on a company.

Although the Use of Debt Provides Tax Benefits to the Firm,debt