If a Corporation Issues Debt Instead of Common Stock to Finance

question 65

Multiple Choice

If a corporation issues debt instead of common stock to finance the purchase of property, then the corporation has

• A)a disadvantage of higher tax payments because dividends are a bigger deduction than interest.
• B)no ability to avoid interest payments from the debt issuance under any circumstances.
• C)required dividend payments that are usually double-taxed.
• D)a higher earnings per share.

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Definitions:

Land

A natural resource not man-made, referring to the earth's surface extending downward to the center of the earth and upward to infinity, including permanently attached natural objects.

Purchase Price

The amount of money that is paid to acquire a good, service, or asset.

New Business Site

The location chosen for establishing a new branch, office, or manufacturing facility of a company.

Patent

A legal right granted by the government to an inventor, giving the holder exclusive rights to use, make, or sell the invention for a certain period.