Which advantage does long-term debt have over issuing common stock when funding business expansion?

Long-term debt provides the advantage that interest payments are tax-deductible, which makes it a more financially efficient option for funding business expansion. When a company takes on long-term debt, the interest it pays on this debt can be subtracted from its taxable income, reducing the overall tax burden. This tax shield effectively lowers the cost of borrowing and makes long-term debt a more attractive option when compared to issuing common stock.

In contrast, issuing common stock does not offer a tax deduction. While it might avoid the obligation of regular interest payments associated with debt, it also does not come with the same financial benefits during tax season. Furthermore, the cost of equity can be higher since shareholders expect a return on their investment, typically in the form of dividends or capital appreciation. Thus, long-term debt can be an advantageous choice for companies looking to minimize their cost of capital while expanding their operations.