Bonds often are a superior method of financing in comparison with sale and issuance of capital shares because of both the (a) leverage effects and (b) tax deductibility of interest payments.

Question

Quizplus · Accepted Answer

Bonds allow companies to borrow money at a lower cost than issuing equity, which can increase their leverage (or borrowing capacity) and potentially lead to higher returns for shareholders. Additionally, interest payments on bonds are tax-deductible, reducing the overall cost of borrowing.

Bonds Often Are a Superior Method of Financing in Comparison