Why Would a Corporation Issue Bonds Payable Instead of Issuing

question 175

Multiple Choice

Why would a corporation issue bonds payable instead of issuing stock?

• A) Debt is a less expensive source of capital than stock.
• B) Borrowing by issuing bonds payable carries no risk to the company.
• C) Debt affects the percentage of ownership of the corporation by the stockholders.
• D) Debt does not have to be shown on the balance sheet.

---

Definitions:

Negative Externality

A cost that affects a party who did not choose to incur that cost, often arising from production or consumption of goods and services.

Socially Optimal Quantity

The level of production or consumption that maximizes social welfare, considering all costs and benefits to society.

Equilibrium Quantity

The quantity of goods or services bought and sold at the equilibrium price, where demand equals supply.

Negative Externality

occurs when the production or consumption of a good or service imposes costs on third parties not directly involved in the transaction.