The risk of the debt capital is less than that of other long-term contributors of capital because ________.
A) they have a lower priority of claim against any earnings or assets available for payment
B) they have the stockholders' personal assurance for all future interest payments
C) there is no interest rate risk as the interest rate is predetermined
D) the tax-deductibility of interest payments lowers the debt cost to a firm substantially

Question

Quizplus · Accepted Answer

The tax-deductibility of interest payments reduces the effective cost of debt for a firm, making it less risky compared to equity, which does not have such tax benefits.

The Risk of the Debt Capital Is Less Than That