An advantage of bond financing is
A)Issuing bonds does not affect shareholder control
B)Interest on bonds is tax-deductible
C)Bonds can increase return on equity
D)Bonds can create financial leverage
E)All of these

Question

Quizplus · Accepted Answer

A) Issuing bonds does not affect shareholder control - this is an advantage because issuing bonds does not dilute shareholders' ownership in the company.

B) Interest on bonds is tax-deductible - this is an advantage because this reduces the company's tax liability, which can save the company money.

C) Bonds can increase return on equity - this is an advantage because if the company can earn a higher return on the funds raised through the bond issue than the interest it pays on the bonds, it can increase its return on equity.

D) Bonds can create financial leverage - this is an advantage because it allows a company to raise funds without having to dilute ownership or give up control of the company.

Therefore, all of these are advantages of bond financing.

An Advantage of Bond Financing Is