Although the use of debt provides tax benefits to the firm,debt also puts pressure on the firm to:
I.Meet interest and principal payments,which if not met can put the company into financial distress;
II.make dividend payments,which if not met can put the company into financial distress;
III.meet both interest and dividend payments,which when met increase the firm cash flow;
IV.meet increased tax payments,thereby increasing firm value

Question

Quizplus · Accepted Answer

The use of debt puts pressure on the firm to meet interest and principal payments, which can lead to financial distress if not met on time. Dividend payments are not directly related to debt and do not pose such pressure on the firm. Similarly, increased tax payments may increase the firm's value, but they are not a direct pressure arising from the use of debt. Therefore, only option I is correct.

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