Business, 05.03.2020 01:05 amy1983

What are the advantages and disadvantages of using debt in a firm's capital structure? Advantage/Disadvantage a. A distribution of stock to shareholders can be a nontaxable stock dividend while a distribution of a debt usually results in dividend income. b. Interest is deductible (subject to limitations) by the payor while a dividend payment is not deductible. c. Repayment of an indebtedness generally is treated as a return of capital while a stock redemption generally is treated as a dividend. d. Stock can be received tax-free as part of a corporate formation and/or reorganization while the receipt of debt usually is treated as boot. e. Worthless stock results in an ordinary loss under Sec. 1244 while a worthless debt instrument generally results in a capital loss.

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What are the advantages and disadvantages of using debt in a firm's capital structure? Advantage/Dis...

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