What Is a Disadvantage of Issuing Bonds Compared to Shares

question 17

Multiple Choice

What is a disadvantage of issuing bonds compared to shares?

• A)The dividends must be paid indefinitely.
• B)Bond interest expense is not tax deductible.
• C)Interest must be paid on a periodic basis regardless of earnings.
• D)Bondholders may require early repayment.

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Definitions:

Nth-Order Equations

Equations that involve derivatives of an unknown function to the nth degree, often found in mathematics and physics.

Imaginary Solutions

Solutions to equations that include the square root of a negative number, often involving the imaginary unit 'i'.

Net Present Value

A financial metric that calculates the value of a series of cash flows by discounting them to the present day, taking into account the time value of money.

Cost of Capital

The average rate a firm pays its investors for the use of their funds adjusted for taxes and administrativecosts. Also called the WACC forweighted average cost of capital.Distinguish from the costs of individualcapital components that are the adjustedrates paid on debt, preferred stock, andcommon equity. The component costs are(weighted) averaged to get the WACC