From a firm's point-of-view, which of the following is true of issuance of convertible bonds?
A) It acts as a permanent source of cheap funds.
B) It results in a non-tax-deductible interest payments.
C) It is an immediate sale of common stock.
D) It decreases financial leverage upon conversion.

Question

Quizplus · Accepted Answer

Issuance of convertible bonds decreases financial leverage upon conversion as the convertible bonds are converted into equity, thereby reducing the amount of debt on the company's balance sheet. This can also potentially reduce the company's interest expense in the future. However, this is not a permanent source of cheap funds as it involves the payment of interest during the bond tenure, and the conversion may not always result in an immediate sale of common stock. Additionally, the interest payments on convertible bonds may be tax-deductible depending on the jurisdiction.

From a Firm's Point-Of-View, Which of the Following Is True