From the viewpoint of the issuing corporation, debt represents crucial differences from equity in all of the following ways but NOT that debt
A) principal and interest are obligatory.
B) Payment default may expose the firm to expensive legal actions.
C) Interest payments are expenses and reduce taxable income.
D) dilutes the ownership of current stockholders.

Question

Quizplus · Accepted Answer

Debt does not dilute the ownership of current stockholders as equity does. When a company issues more shares of stock, it increases the number of ownership units, diluting the relative ownership percentage of existing stockholders. Debt, on the other hand, is a loan that must be paid back with interest, but it does not affect ownership percentage.

From the Viewpoint of the Issuing Corporation, Debt Represents Crucial