A debt contract is incentive compatibleA) if the borrower has the incentive to behave in the way that the lender expects and desires,since doing otherwise jeopardizes the borrower's net worth in the business.B) if the borrower's net worth is sufficiently low so that the lender's risk of moral hazard issignificantly reduced.C) if the debt contract is treated like an equity.D) if the lender has the incentive to behave in the way that the borrower expects and desires

Which of the following is NOT one of the qualities which makes debt attractive to firms?Select one:a. The required return on debt is lower because, from the lender's point of view, debt is less risky than equity.b. It reduces the amount of corporate tax payable by firms by reducing the amount of taxable profit.c. Debt interest only gets paid when the company is making a profit.d. The cost of debt is generally less than the cost of share capital and hence can lower the overall cost of capital for a firm.

Which of the following factors influence how much debt a firm should take on?1 pointIndustry normsThe nature of the firm’s assetsFinancial slackThe overall level of interest ratesAll of the above

Identify a true statement about debt financing.Multiple choice question.It is also termed asset-based financing.It never requires an additional fee.It is also called reward-based funding.It does not require an asset as a collateral.

What is a primary characteristic of debt financing?Answer areaa) Transfer of ownership rightsd) Sharing of profits with investorsb) No obligation to repay principalc) Fixed repayment schedule

Advantages of debt financing over equity financing include that ______. (Check all that apply.)Multiple select question.interest payments are optionalstockholders' control will not be diluteddebt financing does not require repaymentsinterest payments are tax deductible