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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

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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

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

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MarnieElite · Tutor for 8 years

Answer

Companies with good credit worthiness could have a cheaper cost of borrowing.

Explain

## Step 1: Analyze given options <br /><br />The question gives four different possible features of debt as a source of finance. Let's examine each one.<br /> <br />## Step 2: Choose the correct options<br /><br />1. 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. <br /><br />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.<br /><br />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.<br /><br />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.
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