Advantage of Using Debt in Capital
Structure-
- Overall cost of Capital is reduced while
taking cost of debt in the capital structure.
- Interest paid to debt holder is tax
deductible
- Company can take independent decision no interface is there,
greater freedom the company will enjoy.
Disadvantage of Using Debt in Capital
Structure-
- Company has to pay te fixed amount of interest
when company is in the loss position
- While liquidating of the company first preference will be given
to the Debt holders remaning should be distibuted
between the preference shareholder and equity shareholder.
- Using more debt the company makes riskier and it will
impact the Ratings of the company, the rating of
company will reduce using more debt.
I hope this clear your
doubt.
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or need something else. I'll help asap.
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