Question

In: Accounting

Which of the following represents a reason why a company might prefer to issue bonds instead...

Which of the following represents a reason why a company might prefer to issue bonds instead of issuing shares of common stock? Select all answers that apply.

  • For the tax advantages (deductibility of interest)

  • To lower the risk of bankruptcy

  • To provide additional cash flow flexibility

  • To raise capital without forfeiting ownership in the company

Solutions

Expert Solution

Ans is

  • For the tax advantages (deductibility of interest) ( reason:- Bonds interest is tax-deductible)

  • To raise capital without forfeiting ownership in the company( reason:- Bonds does not give ownership in the company. It is given to shareholder only)

Note:-

  • To lower the risk of bankruptcy ( reason:- Bonds increase the risk of bankruptcy because payment of interest is a must.)

  • To provide additional cash flow flexibility (reason:-There is no cash flow flexibility because  company has to pay bond interest regularly without default)

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