Bonds Are a Popular Source of Financing Because

question 173

Multiple Choice

Bonds are a popular source of financing because

• A)bond interest expense is deductible for tax purposes,while dividends paid on stock are not.
• B)financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock.
• C)a company having cash flow problems can postpone payment of interest to bondholders.
• D)the bondholders can always convert their bonds into stock if they choose.

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Definitions:

Production Equipment

Machinery and tools that are used in the process of manufacturing goods.

Discount Rate

The interest rate used to discount future cash flows to their present value, assessing the attractiveness of an investment.

Salvage Value

is the estimated resale value of an asset at the end of its useful life, important for depreciation calculations.

Outflow

The movement of money out of a business or financial account, often associated with expenses or investments.