Which of the following is true?
A) It is common for companies to both retire debt and issue new bonds in the same year as a way to replace higher interest rate debt with lower rate issuances.
B) The corporation will have to pay cash to bond investors when those investors demand to call the bonds.
C) Payment of interest is an investing activity since we would not have interest unless we borrowed money or sold bonds to the public.
D) Retractable bonds require cash outflow connected to investing when the issuing corporation redeems the bonds.

Question

Quizplus · Accepted Answer

It is common for companies to retire high interest rate debt and issue new bonds with lower interest rates in the same year. This helps to lower the overall cost of borrowing for the corporation.

Option B is incorrect as bond investors cannot demand call of bonds, it is at the discretion of the issuing corporation. Option C is incorrect as payment of interest is an operating activity as it is a cost of doing business. Option D is incorrect as retractable bonds allow the bondholders to redeem the bond at a specified time, it is not the issuing corporation that redeems the bonds.

Which of the Following Is True