PRC-3 · Chapter 4 · Question 34 of 65
When a firm is choosing between issuing new shares or taking a bank loan, what is a key financial advantage of choosing the bank loan?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The interest payments are generally tax-deductible expenses
Explanation
A major advantage of debt financing is that interest payments reduce the firm's taxable income, creating a 'tax shield'.
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