From the point of view of the business, which of the following is an advantage of using long-term debt rather than equity in financing?
I. Interest is tax deductible.
II. It does not dilute the control of existing owners.
III. Creditors do not share in any excess profits of the entity.
IV. Interest payments are a fixed commitment regardless of profits.

Question

Quizplus · Accepted Answer

Long-term debt provides the advantage of interest being tax-deductible, it does not dilute the control of existing owners unlike equity financing, and creditors do not share in any excess profits of the entity. However, the statement IV is not always true since there may be agreements with the creditors to have variable interest payments. Therefore, options A and B are incorrect.

From the Point of View of the Business, Which of the Following