One Potential Advantage of Financing Corporations Through the Use of Bonds

question 86

Multiple Choice

One potential advantage of financing corporations through the use of bonds rather than common stock is

• A) the interest on bonds must be paid when due
• B) the corporation must pay the bonds at maturity
• C) the interest expense is deductible for tax purposes by the corporation
• D) a higher earnings per share is guaranteed for existing common shareholders

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Definitions:

Balance Sheet

A report detailing a company's assets, liabilities, and equity of shareholders at a particular moment.

Interest Expense

The cost incurred by an entity for borrowed funds, which is recognized in the financial statements as an expense.

Times Interest Earned Ratio

A financial metric that measures a company's ability to cover its interest expenses with its earnings before interest and taxes.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been deducted from total revenue.