[Solved] #1 The major advantage of debt financing is the: a. number of... (2024)

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[Solved] #1 The major advantage of debt financing is the: a. number of...? ›

#1 The major advantage of debt financing is the deductibility of interest expenses.

One advantage of debt financing is that it allows a business to leverage a small amount of money into a much larger sum, enabling more rapid growth than might otherwise be possible. Another advantage is that the payments on the debt are generally tax-deductible.

Interest on debt is tax deductible by a corporation, while dividends paid are not. Therefore, the major advantage of debt financing is in lowering taxes.

The correct option is b) Interest charges on debt are tax deductible. One of the main advantages of using debt as a source of capital is the tax benefit.

The statement is true that the major benefit of debt financing is the tax deductibility of interest expense. Interest expense is tax deductible, which means interest expense is deducted from the net income, which in turn reduces the tax liability.

The main advantage of debt finance is the fact that you retain control of the business and don't lose any equity in the company. This means that you won't need to worry about being sidelined or having decisions taken out of your hands. Another key benefit is the fact that it's time-limited.

By using debt to invest in assets that appreciate, investors can prospectively gain better returns and reach their financial goals faster. For example, there are certain types of debt, such as a mortgage used for a rental property, that can help generate a positive net cash flow and, over time, heighten assets' value.

The advantages of debt financing include lower interest rates, tax deductibility, and flexible repayment terms. The disadvantages of debt financing include the potential for personal liability, higher interest rates, and the need to collateralize the loan.

The aim of debt financing is to ensure that the business is growing, can manage its capital expenditures and is able to bridge gaps in the cash flow. Through this type of financing, businesses do not have the risk of losing ownership but it comes with its own set of obligations.

What is the most important benefit of debt? It provides a tax benefit.

What are the advantages of debt market? ›

Debt Market Securities offer a predictable stream of payments by paying interest and principal at maturity. These interest payments are guaranteed and promised payments, which will assist you in cash flow needs.

Answer and Explanation: The biggest advantage of borrowing money instead of issuing stock is the tax benefit. Interest on debt securities, like loans or bonds, is tax deductible. This means that companies can reduce their taxable income by the amount of interest paid on their debt.

A major advantage of debt financing is that interest expense is tax deductible.

Opting for debt financing can offer you a lower cost of capital, tax advantages through deductible interest payments, and the opportunity to maintain control and ownership of your business. It also allows you to benefit from leverage and retain stability in shareholder ownership.

Limits Company's Exposure to Interest Rate Risk – Long-term, fixed-rate financing minimizes the refinancing risk that comes with shorter-term debt maturities, due to its fixed interest rate, thus decreasing a company's interest rate and balance sheet risk.

Debtor finance is a specific type of lending that allows businesses to borrow money against amounts owed by customers known as its accounts receivable. For many business owners, debtor financing offers access to the cash owed to them without the need to take on debt.

All in all, private debt funds provide clear-cut advantages for investors in the current lending market. High yields, low risk, and portfolio diversification are all strong attractants for investors in the private debt sphere.

Regular income - Unlike the windfall returns and slowdowns of equity funds, debt funds deliver a regular return. Investments in debt funds can be made to earn a monthly income. For this purpose, investors can invest in a Systematic Withdrawal Plan (SWP) that pays them in the form of regular dividends.