Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company.a. Large payments of par value are made at maturity.b. Unlike equity, bonds do not affect ownership of a company.C. A business earns a lower return with the funds from the bond than it pays in interest.d. A business earns a higher return with the funds from the bond than it pays in interest.e. Requires payments of interest even when cash flows are low.f. Bond interest payments reduce total taxes paid.

Bond financing refers To the borrowing for the long term that is used by the state and local…

Answered: Identify the following as either an…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 20MC: The difference between equity financing and debt financing is that A. equity financing involves...

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The difference between equity financing and debt financing is that A. equity financing involves borrowing money. B. equity financing involves selling part of the company. C. debt financing involves selling part of the company. D. debt financing means the company has no debt.
Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. a. Requires payments of both periodic interest and par value at maturity. b. Bonds require payment of par value at maturity. C. Bonds do not affect owner control. d. A company earns a lower return with borrowed funds than it pays in interest. e. A company earns a higher return with borrowed funds than it pays in interest. f. Bonds require payment of periodic interest.
Identify the following as elther an advantage or a disadvantage of bond financing for a company. a. Bonds increase return on equity if the company earns a higher return with borrowed funds than it pays in interest. b. Interest on bonds is tax deductible. c. Bonds require payment of par value at maturity. d. Bonds do not affect owner control. e. A company earns a lower return with borrowed funds than it pays in interest. f. Unlike equity ownership, a par value payment is required at a specified date. Advantage
Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. A company earns a lower return with borrowed funds than it pays in interest.
Identify the following as either an advantage or a disadvantage of bond financing for a company. a. Bonds do not affect owner control. b. A company earns a lower return with borrowed funds than it pays in interest. c. A company earns a higher return with borrowed funds than it pays in interest. d. Bonds require payment of periodic interest. e. Interest on bonds is tax deductible. f. Bonds require payment of par value at maturity.
Identify the following as either an advantage or a disadvantage of bond financing for a company. a. Bond interest payments reduce total taxes paid. b. Bonds do not affect owner control. c. A company earns a lower return with borrowed funds than it pays in interest. d. A company earns a higher return with borrowed funds than it pays in interest. e. Bonds require payment of periodic interest. f. Interest on bonds is tax deductible.
Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. A company earns a higher return with borrowed funds than it pays in interest.
Which of the following is an advantage of debt financing? a. Excessive debt increases the risk of equity holders and therefore depresses share price. b. The obligation is generally fixed in terms of interest and principal payments. c. Interest and principal obligations must be paid regardless of the economic position of the firm. d. Debt agreements contain covenants.
Tell whether the following statements describe the characteristics of stocks or bonds. e. Issues of a stake of ownership in a company. f. Investment that generally have higher reward. g. Debt that is made with an investors for cash exchange for interest. h. Investors can earn money if the security increases, but they can lose money if the security decreases. i. The seller agrees to pay interest on the loan at a fixed rate and schedule.
You are working for a mid-sized company that is looking to estimate its cost of debt. The company has never had an issuance in the bond market. What would be the best proxy to estimate its cost of debt? A. Cost of its bank debt B. Cost of its equity C. Cost of debt from companies of a similar market capitalization D. Cost of debt in the corporate bond market
There are advantages and disadvantages of debt financing in contrast to equity financing. Which of the following is less likely to represent an advantage of debt financing? a. The cost of debt should be lower than the cost of equity for most companies due to the lower risk to the lender and the tax deductibility of interest b. The repayment of debt capital may affect the liquidity of the company c. If the return on assets exceeds the cost of debt, then this will result in a higher return on shareholders’ funds as compared to the return on assets d. The increase in borrowings will not normally affect the voting control of the current shareholders as compared to the issue of shares e. Fixed interest rate loans will result in the variability in the market value of such loans over time which will normally be less than the variability in the value of the equity of the company
Which of the following is a disadvantage of using bonds? a. Bondholders do not participate in extraordinary profits; the payments are limited to interest. b. Bondholders do not have voting rights. c. Debt (other than income bonds) produces fixed charges, increasing the firm’s financial leverage. d. Flotation costs of bonds are generally lower than those of ordinary (common) equity shares.

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