Debt financing is a cheaper Source of finance because of ______________.

time value of money

No worries! We‘ve got your back. Try BYJU‘S free classes today!

rate of interest

No worries! We‘ve got your back. Try BYJU‘S free classes today!

tax-deductibility of interest

Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses

dividends not payable to lenders

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Open in App

Solution

The correct option is C tax-deductibility of interest
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.

Suggest Corrections

Similar questions

A ______ debt-to-equity ratio indicates a lower amount of financing by debt via lenders versus funding through equity via shareholders.

A loan from a bank is a ____________ source of finance as the loan amount can be increased according to business needs.

Explain trade credit and factoring as a source of finance for a business enterprise.

Loans from commercial banks is a flexible source of finance.

Join BYJU'S Learning Program