A disadvantage of bond financing is:
A)Bonds do not affect owners' control.
B)Interest on bonds is tax deductible.
C)Bonds can increase return on equity.
D)It allows firms to trade on the equity.
E)Bonds pay periodic interest and the repayment of par value at maturity.

Question

Quizplus · Accepted Answer

The disadvantage of bond financing is that it requires the payment of periodic interest and the repayment of par value at maturity. This can create a significant burden on a company's cash flow and may restrict its ability to pursue other opportunities or investments. It also carries the risk of default if the company is unable to meet its interest or repayment obligations.

A Disadvantage of Bond Financing Is