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…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Under which of the following situation, would a firm most likely to call its outstanding callable bonds? Group of answer choices a)The firm has financial distress. b)The company’s bonds are downgraded. c)The market interest rate increases d)The market interest rate declines
The key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity. true or false explain
Which of the following is a disadvantage of long-term debt as a means of company financing? Group of answer choices Debtholders have preferential status in the event of a company being wound up. Tax relief is available on interest payments. Debt is often quicker to arrange compared to equity. The amount and timing of interest payments is predictable, making budgeting easier.
Please provide step by step explaination for each question
In general, debt financing is _______ than equity financing. A firm’s ______ has priority in claiming the company’s assets. Question 17 options: 1) less costly, shareholders 2) less costly, lender 3) more costly, shareholders 4) more costly, lender
When a corporation invests borrowed money in assets that generate profits greater than the after-tax cost of the debt, it increases the return on equity for common shareholders. creates financial leverage. has a mix of debt and equity in its capital structure. does all of these options. If the effective rate of interest is greater than the contract rate, the bonds will sell at par. a premium. a discount. any of these choices, depending on other circumstances.
Which of the following is most consistent with using debt to reduce agency costs or conflicts? Question 11 options: Increasing debt reduces a firm’s business risk The interest paid on debt reduces taxable income and income taxes The interest paid on debt reduces cash that management of a firm might otherwise waste or use poorly The issuance of debt helps firms increase their credit rating
Which of these is a main characteristic of debt capital?(a) Investors in debt participate in the ownership of the firm.(b) Investors in debt are paid interest.(c) Debt is more risky for the investor and less risky for the firm.(d) If dividends are not paid, this can lead to foreclosure, legal proceeding and financial distress.
1. Why do high yield fixed income investors favor PIK bonds for companies who are about to enter a restructuring
A company that is leveraged is one that O a. contains debt financing so as to increase the return on an investment. O b. contains equity financing. O c. contains no debt financing. O d. has a high earnings per share.
An advantage of bonds is O Bonds do not affect owner control O Bonds require payment of par value at maturity O Bond payments can be burdensome when income and cash flow are low O Bonds can decrease return on equity
Which of the following statements is false?(a) The quickest way to determine whether a firm has too much debt is to calculate the debt-to-equity ratio.(b) The best guideline to determine the firm's liquidity is to calculate the current ratio.(c) From the investor's point of view, the rate of return on common equity is a good indicator of whether the firm is generating an acceptable return to the investor.( d) We can determine the operating margin by expressing net income as a percentage of total sales.

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