One Argument Advanced in Favor of Financing with Term Bonds

question 82

Essay

One argument advanced in favor of financing with term bonds secured by some sort of a sinking fund is that earnings on investments held by the debt service fund will reduce the amount of support required from other sources.What is your opinion of the validity of this argument?

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Definitions:

Economies Of Scope

Cost advantages that result from a firm's ability to produce multiple products more efficiently together than separately.

Seasonal Demand

Fluctuations in the demand for certain products or services that occur at specific times of the year.

Diseconomies Of Scope

Exist when the cost of producing two products jointly is more than the cost of producing those two products separately.

Economies Of Scope

Cost advantages that a business achieves by producing a wider variety of products, rather than specializing in a single product or service.