One of the disadvantages to a firm in issuing zero coupon bonds is that the tax shield associated with the bonds' appreciation cannot be claimed until the bond matures.

Question

Quizplus · Accepted Answer

The tax shield associated with the interest expense of zero coupon bonds is recognized annually, even though the interest is not paid until maturity, because the issuer can deduct the imputed interest expense each year for tax purposes.

One of the Disadvantages to a Firm in Issuing Zero