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:

Elation

A feeling or state of great joy or pride; elevated spirits or happiness.

Mania

A mental state characterized by extremely elevated mood, energy, and unusual thought patterns, often seen in bipolar disorder.

Negative Mood

A general, enduring state of mind characterized by negative emotions such as sadness, anxiety, or irritability.

Critical Thinking

Thinking that does not blindly accept arguments and conclusions. Rather, it examines assumptions, appraises the source, discerns hidden biases, evaluates evidence, and assesses conclusions.