ECONOMICS
DECISION MAKING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The customer service levels of a business
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The profitability and liquidity of a business
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The business’ reputation for product quality
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Working conditions in the business
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Detailed explanation-1: -The firm gets an income tax benefit on the interest component that is paid to lender. Therefore, the net taxable income of the company is reduced to the extent of the interest paid. All other sources do not provide any such benefit and hence, it is considered as a cheaper source of finance.
Detailed explanation-2: -A big advantage of debt financing is the ability to pay off high-cost debt, reducing monthly payments by hundreds or even thousands of dollars. Reducing your cost of capital boosts business cash flow.
Detailed explanation-3: -The main advantage of debt financing is that a business owner does not give up any control of the business as they do with equity financing.
Detailed explanation-4: -Most companies will need some form of debt financing. Additional funds allow companies to invest in the resources they need in order to grow. Small and new businesses, especially, need access to capital to buy equipment, machinery, supplies, inventory, and real estate.