What are the main differences between corporate debt and
equity? Why do some firms try to issue equity in the guise
of debt?
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Answer Posted / a.b.
To clarify the above answer: The firm can take a deduction
on the interest paid on the debt. Thus, the interest paid
on the debt will not be taxed to the corporation, but will
be taxed to the debt holder. This is why it such payments
are essentially receiving "pass-through" status, whereas
dividend payments are taxed when the corporation receives
the funds and when the stock holder receives them - called
"double-taxation."
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