Bonds are a popular source of financing because

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Bonds are a popular source of financing for several reasons, and among them are:
a. The relative cost of issuing debt is often lower than the cost of issuing equity. When a company issues bonds, it is borrowing money and agreeing to pay interest on that debt. This interest is a tax-deductible expense for the company, which can make it a cheaper form of financing compared to issuing equity. When a company issues equity, it is selling a portion of ownership in the company, and the cost comes in the form of dilution of existing shareholders' ownership and potentially higher expectations for returns from equity investors.
b. Financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock. Issuing new stock can dilute the ownership of existing shareholders and may signal to the market that the company is unable to generate enough cash flow internally to fund its operations or growth initiatives. This can be perceived negatively by analysts and investors, potentially leading to a lower stock price.
c. A company having cash flow problems can postpone payment of interest to bondholders. This statement is generally not true. Unlike dividends on stocks, which can be suspended by the company in times of financial difficulty, interest payments on bonds are contractual obligations. Failure to make timely interest payments can result in default and have serious consequences for the company, including potential bankruptcy. However, some bonds, known as payment-in-kind (PIK) bonds, do allow the issuer to pay interest with additional bonds rather than cash, but this is a specific feature that must be agreed upon at the time of issuance.
d. The bondholders can always convert their bonds into stock if they choose. This is not true for all bonds. Only convertible bonds have this feature. Convertible bonds give bondholders the option to convert their bonds into a predetermined number of shares of the issuing company's stock. This feature is not present in traditional bonds, which are purely debt instruments with no option for conversion into equity.
In summary, the primary reason bonds are a popular source of financing is that they often offer a lower cost of capital compared to equity, and they do not dilute ownership. However, the ability to postpone interest payments or convert bonds into stock is not a general characteristic of all bonds but rather specific features that may be included in certain bond issues.

Bonds Are a Popular Source of Financing Because