All of the Following Are Common Reasons for a Company

question 42

Multiple Choice

All of the following are common reasons for a company to issue convertible bonds except:

• A)The company prefers to issue shares, but is unsure of the present stock market and the timing.
• B)A bond that has a favourable component such as a conversion privilege, can carry a lower interest rate than a "straight" bond.
• C)The bonds are issued to controlling shareholders so that they can receive interest payments in preference to other shareholders.
• D)All of these answers are correct.

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Definitions:

Tax Rate

The fraction of earnings upon which the government imposes taxes on a person or corporate entity.

Interest Expense

The cost incurred by an entity for borrowed funds, typically presented on the income statement.

Incremental Cash Flows

The additional cash flow an entity receives from undertaking a new project or investment.

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time.