A corporation undertaking an expansion project issues 20 year bonds to ﬁnance the project. Which of the following is most likely true?

Question

Quizplus · Accepted Answer

When a corporation issues bonds, it is borrowing money and must pay interest on the amount borrowed. The option of not making payments unless there are positive earnings is associated with equity financing, not debt financing. The presence or absence of outstanding bonds prior to issuing new bonds is not relevant. Whether the bonds sold at a premium or discount depends on market conditions and the creditworthiness of the corporation. Without more information about the company's specific circumstances, it is impossible to determine whether they would have preferred stock as an alternative to bonds.

A Corporation Undertaking an Expansion Project Issues 20 Year Bonds