PRC-3 · Chapter 4 · Question 63 of 65
When a corporation is deciding its capital structure, what is a primary financial benefit of choosing debt (loans) rather than issuing new equity?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Interest payments on debt are generally tax-deductible expenses
Explanation
A major advantage of debt is the 'tax shield'; interest payments are treated as business expenses, directly reducing the firm's taxable corporate income.
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