BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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management retains control
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interest paid is tax deductable
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Bonds are only a temporay source of finance
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none of the above
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Detailed explanation-1: -Answer: Earnings per share on common stock may be lower. What is this? The earnings per share on common stock may be lower is not an advantage of issuing bonds instead of common stocks.
Detailed explanation-2: -There are also some disadvantages to issuing bonds, including: regular interest payments to bondholders-though interest may be fixed, the interest will usually have to be paid even if you make a loss.
Detailed explanation-3: -Bonds have some advantages over stocks, including relatively low volatility, high liquidity, legal protection, and various term structures. However, bonds are subject to interest rate risk, prepayment risk, credit risk, reinvestment risk, and liquidity risk.
Detailed explanation-4: -There are several advantages of issuing bonds (or other debt) instead of issuing shares of common stock: Interest on bonds and other debt is deductible on the corporation’s income tax return while the dividends on common stock are not deductible on the income tax return.