Question
Question 9 From the company's perspective which of the following features is an advantage of debt as a source of finance: Companies are legally required to make regular interest payments on debt. Lenders may enforce covenants on the company as a form of additional protection. Companies with good credit worthiness could have a cheaper cost of borrowing. Lenders may require some of the company's non-current assets to be used as securities against the debt. 3 pt
Answer
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Marnie
Elite · Tutor for 8 years
Answer
Companies with good credit worthiness could have a cheaper cost of borrowing.
Explanation
## Step 1: Analyze given options The question gives four different possible features of debt as a source of finance. Let's examine each one. ## Step 2: Choose the correct options1. Companies are legally required to make regular interest payments on debt: This is more of a disadvantage than an advantage from a company's perspective. It binds the company to an obligation to pay off the interest consistently. 2. Lenders may enforce covenants on the company as a form of additional protection: This is not an advantage from the company's perspective. Normally such imposed conditions or restrictions may hurt the operational or financial flexibility of the company.3. Companies with good credit worthiness could have a cheaper cost of borrowing: This is an advantage of debt finance. The better the creditworthiness of a company, the lower its cost of borrowing.4. Lenders may require some of the company's non-current assets to be used as securities against the debt: This is not typically an advantage from a company's viewpoint. It puts the company's assets at risk if by any chance it cannot repay the debt.