The lower risk nature of long-term debt in a firm's capital structure is due to the fact that ________.

Question

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Creditors have a higher position in the priority of claims, which means they have the right to be paid before equity holders in case of bankruptcy or liquidation. This gives long-term debt a lower risk nature as compared to equity capital. Option A is incorrect because debt holders are not the true owners of the firm; they are lenders who have a claim on the firm's assets. Option B is incorrect as equity capital does not have a fixed return. Option D is incorrect as dividend payments are not tax-deductible.

The Lower Risk Nature of Long-Term Debt in a Firm's