Question

select all that apply

advantages of debt financing over equity financing are that ________. (check all that apply.)

control is not diluted
repayment of debt principal is optional
interest payments on debt are tax deductible
more money is available

Explanation:

Analyze control dilution

Debt holders do not receive voting rights or ownership shares. Therefore, issuing debt does not dilute the control of existing shareholders. This is a primary advantage of debt financing over equity financing.

Analyze repayment obligations

Repayment of debt principal is a legal obligation with fixed maturity dates. It is not optional. In contrast, equity financing does not require repayment of principal. Thus, this is a disadvantage of debt, not an advantage.

Analyze tax deductibility of interest

Interest payments on debt are classified as an expense and are tax-deductible, which reduces the company's taxable income. Dividends paid to equity holders are not tax-deductible. This tax shield is a major advantage of debt financing.

Analyze availability of funds

The total amount of money available depends on market conditions, creditworthiness, and investor demand, rather than the choice of financing instrument itself. Choosing debt does not inherently mean "more money is available" compared to equity.

Answer:

• control is not diluted (Correct answer)
• repayment of debt principal is optional
• interest payments on debt are tax deductible (Correct answer)
• more money is available