Which statement best describes the major drawback to the use of debt financing?

Question

Quizplus · Accepted Answer

The major drawback to the use of debt financing is the financial risk associated with it. When a company takes on debt, they are required to make regular interest payments and repay the principal amount borrowed, regardless of their financial performance. This creates a greater risk of financial distress, bankruptcy, or default if the company is unable to make these payments. On the other hand, options A and B are incorrect as debt financing does not give common shareholders a voice in company management and it is not necessarily a form of permanent financing. Option C is also incorrect as interest paid on debt is typically tax-deductible.

Which Statement Best Describes the Major Drawback to the Use