There is an advantage to using equity rather than debt financing because dividend payments are tax deductible.

Question

Quizplus · Accepted Answer

Dividend payments are made to shareholders from profits that have already been taxed at the corporate level. Therefore, they are not tax deductible for the company. Interest payments on debt financing, however, are tax deductible, which is an advantage of using debt over equity financing.

There Is an Advantage to Using Equity Rather Than Debt