Asked by Romilee Benavides on Jun 21, 2024
Verified
Which of the following is not an advantage of issuing bonds instead of common stock?
A) Stockholder control is not affected.
B) Earnings per share on common stock may be lower.
C) Income to common shareholders may increase.
D) Tax savings result.
Earnings Per Share
A measure of a company's profitability, calculated as the net income divided by the number of outstanding shares of its common stock.
Stockholder Control
The influence and authority stockholders have over the management and strategic decisions of a corporation, often exercised through voting rights associated with shares.
- Understand the tax consequences associated with the interest from corporate bonds and dividends.
- Understand the attributes and varieties of securities commonly employed by companies possessing strong credit ratings.
Verified Answer
KK
KHOO KHAI WEI CELINE studentJun 21, 2024
Final Answer :
B
Explanation :
Issuing bonds instead of common stock does not dilute ownership or control, which is an advantage. However, since interest on bonds must be paid before earnings are distributed to shareholders, it can lower the earnings per share on common stock, which is not considered an advantage.
Learning Objectives
- Understand the tax consequences associated with the interest from corporate bonds and dividends.
- Understand the attributes and varieties of securities commonly employed by companies possessing strong credit ratings.