Paper 2 · Sources of Finance
Which of the following is an advantage of financing a business through debt rather than issuing new shares?
AInterest payments are tax deductible, unlike dividend payments
BLenders gain voting rights at the company's annual general meeting
CLoan repayments never increase the business's liabilities
DOwnership of the business must be shared with the lender
Explanation: A key advantage of debt financing is that interest is a tax-deductible expense, and ownership is not diluted since lenders, unlike shareholders, have no voting rights or ownership stake.
Derived from ZIMSEC Business_studies Paper 2, June 2019, Q14
