Which of the following statement is TRUE regarding debt?
Correct answer: B. Unpaid debt can result in bankruptcy or financial failure.
- A. Debt is an ownership interest in the firm.
- B. Unpaid debt can result in bankruptcy or financial failure.
- C. Debt provides the voting rights to the bondholders.
- D. Corporation's payment of interest on debt is fully taxable.
Explanation
Debt creates a contractual obligation, and failure to repay it can lead to bankruptcy or financial failure. Debt does not provide ownership or voting rights, while interest is generally tax-deductible to the corporation.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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