Question

4 - long-term financing options

learning objective: recognize options for long-term debt financing.

what is a major benefit of long-term debt financing?

a.) it enables the business to completely avoid any repayment obligations.
b.) it removes the requirement to pay interest on borrowed money.
c.) it offers quick access to a large amount of capital with payments made over time.
d.) it ensures higher profits regardless of market conditions.

Explanation:

Define long-term debt financing

Using the Long-Term Expenses knowledge point
Long-term debt financing involves borrowing capital that is repaid over a period exceeding one year.

Analyze the options

• Option a: Incorrect. Debt financing always requires repayment of the principal amount.
• Option b: Incorrect. Borrowing money through debt requires paying interest to lenders.
• Option c: Correct. It provides immediate access to substantial capital, with structured repayments spread over several years.
• Option d: Incorrect. Debt financing does not guarantee profits, as interest obligations must be met regardless of market performance.

Answer:

• a.) It enables the business to completely avoid any repayment obligations.
• b.) It removes the requirement to pay interest on borrowed money.
• c.) It offers quick access to a large amount of capital with payments made over time. (Correct answer)
• d.) It ensures higher profits regardless of market conditions.