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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