What Is an Advantage of Issuing a Bond with a Sinking

question 63

Multiple Choice

What is an advantage of issuing a bond with a sinking fund provision?

• A) This provision offers greater security to an investor because funds to retire the bond issue are set aside each year into the sinking fund.
• B) The bonds may be converted to a specified number of shares of common stock at the firm's convenience.
• C) The firm has the right to call in the outstanding bonds at any time and thus sink the bond issue.
• D) The firm can decide to redeem the fund at any time.
• E) The firm may retire portions of the bond issue at different predetermined dates.

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Definitions:

Direct Materials

Direct materials are raw materials that are directly traceable to the manufacturing of a product. They are an essential component of the total manufacturing cost of a product.

Variance

The difference between planned or expected performance and actual performance, often analyzed in budgeting and performance management.

Liters

A metric unit of volume equal to 1,000 cubic centimeters, commonly used to measure liquids.

Standard Costs

These are predetermined costs of manufacturing a single unit or a number of units of a product during a specific period, based on expected material, labor, and overhead costs.