The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common stock, include which of the following?

Question

Quizplus · Accepted Answer

Option A is correct because interest payments made on the bond are tax-deductible to the company, resulting in a lower tax liability.

Option B is not entirely correct as the probability of bankruptcy depends on various factors such as debt service coverage ratio, interest coverage ratio, debt-equity ratio, and other financial ratios.

Option C is also valid because issuing bonds does not dilute the ownership control of the shareholders, and the bondholders do not have voting rights. Therefore, the company can use the funds to finance its expansion projects without losing any voting control of the company.

Thus, options A and C are correct, and consequently, option D is the best answer.

The Advantages of Obtaining Long-Term Funds by Issuing Bonds, Rather