Debt Financing is a cheaper source of finance because of:

The correct answer is C. Tax-deductibility of Interest.

Debt financing is a cheaper source of finance because the interest paid on debt is tax-deductible. This means that the company can reduce its taxable income by the amount of interest it pays. This can lead to a significant tax savings, which can make debt financing a more attractive option than equity financing.

The other options are not correct because:

• Time Value of Money: This is the concept that money has value today and that its value decreases over time. This is not a factor that makes debt financing cheaper than equity financing.
• Rate of Interest: The rate of interest is the amount of interest that a lender charges a borrower for a loan. The rate of interest is not a factor that makes debt financing cheaper than equity financing.
• Dividends not payable to lenders: Dividends are payments that a company makes to its shareholders. Dividends are not a factor that makes debt financing cheaper than equity financing.