Elm Corporation plans to invest $300 million to earn about 15% before income taxes.The company is considering whether it should raise the $300 million by issuing 10% bonds payable or capital stock.If the company issues the bonds,it will probably report:

Question

Quizplus · Accepted Answer

Interest on bonds is tax-deductible, which would lower Elm Corporation's taxable income and thus its income tax expense compared to issuing capital stock, which does not offer a tax deduction. However, the interest payments on the bonds would also reduce the company's net income compared to issuing capital stock, which does not require interest payments.

Elm Corporation Plans to Invest $300 Million to Earn About