Why would a corporation issue bonds payable instead of issuing stock?
A) Debt is a less expensive source of capital than stock.
B) Borrowing by issuing bonds payable carries no risk to the company.
C) Debt affects the percentage of ownership of the corporation by the stockholders.
D) Debt does not have to be shown on the balance sheet.

Question

Quizplus · Accepted Answer

Corporations may issue bonds payable instead of issuing stock because debt is often a less expensive source of capital than equity. Bonds typically carry lower rates of return than the dividends paid on stocks, so corporations can raise the capital they need at a lower cost. Additionally, issuing bonds does not dilute ownership in the corporation, which can be an advantage for existing shareholders.

Why Would a Corporation Issue Bonds Payable Instead of Issuing