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

Question

Quizplus · Accepted Answer

The interest expense incurred on bond issuances is tax-deductible for the corporation, which reduces its overall tax liability. This makes issuing bonds more attractive than issuing common stock, where dividends paid to shareholders are not tax-deductible. The other options (A, B, and D) are all obligations that the corporation must fulfill, but they do not provide a distinct advantage over issuing common stock.

One Potential Advantage of Financing Corporations Through the Use of Bonds