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Subject: Federal Taxation 2019 (Business Tax) In structuring the capitalization of a corporation, what are the...

Subject: Federal Taxation 2019 (Business Tax)

In structuring the capitalization of a corporation, what are the advantages and disadvantages of utilizing debt rather than equity?

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Answer #1

Advantages:

Debt interest is tax deductible whereas divident is not tax deductible.

Control over the business remains with the same group of people.

Fixed payment which is predictable and can be preplanned or mannaged well.

Flexibility in capital stracture.

Disadvantages:

Huge cash burden to repay the debt periodically.

It effects the credit rating of the corporation.

Needs to maintain high amount of cash in hand to meet the repayment requirements.

Thank You..!!

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