Identify an advantage of debt financing?

Debt financing is often considered advantageous primarily due to its lower cost of capital compared to equity. When a business opts for debt, it typically pays interest on the borrowed funds, which can be lower than the return expected by equity investors. This is especially true in times of low interest rates or for businesses with strong credit ratings.

Using debt allows companies to leverage their operations, potentially enhancing returns on equity. Although there is an obligation to repay debt, the cost of that debt can remain fixed or relatively low. This means that businesses can raise capital without giving away ownership stakes, thereby preserving control for existing shareholders.

While other options present scenarios relevant to finance, they do not align with the primary benefits offered by debt financing. For instance, ownership dilution refers to the loss of equity stake for existing shareholders, which typically occurs with equity financing rather than debt. Lack of repayment obligation suggests free capital, which is not the case with debt as it comes with mandatory repayment conditions. Similarly, flexible repayment terms might vary widely depending on the lender and type of debt, and while it can sometimes be a feature, it is not consistent enough to serve as a general advantage of debt financing as a whole.