From the firm's point-of-view, the issuance of convertible bonds has all of the followingadvantages EXCEPT

Question

Quizplus · Accepted Answer

The issuance of convertible bonds can provide the firm with a temporary source of cheap funds, as the interest rate on the bonds may be lower than the rate for traditional debt or equity financing. The interest payments on the bonds are also typically deductible for tax purposes. Additionally, issuing convertible bonds allows the firm to defer the sale of common stock, which can be beneficial if the firm believes that the stock price will increase in the future. However, upon conversion, the firm's financial leverage may actually decrease, as the bonds will be converted into equity rather than remaining as debt. Therefore, B is the incorrect choice as it states "an increase in financial leverage" when it is actually a decrease.

From the Firm's Point-Of-View, the Issuance of Convertible Bonds Has