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.

A bond is a type of instrument used by a company to raise additional capital from the market. These…

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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Which of the following is most correct? Treasury bonds carry high default risk because government has the option not to pay its indebtedness. Corporate bonds have lower interest rates compared with treasury bonds because bonds were issued with the aid of financial intermediaries. Corporate bonds have no default risk because they are backed by their corporate assets. Treasury bonds have lower interest rates because they are assumed to carry no default risk.
How any company is taking tax advantage of bonds payable or any other fixed cost financing?
Which of the following statement is false about premium on bonds payable? It decreases the carrying value of the bonds It is an adjunct account It is recognized when stated rate is higher than effective rate It is recognized when cash proceeds is more than the face value of the bonds
True or False. 1. If the amount of the bond payable is fully paid, together with the interest, the liability of the issuing entity ceases to exist. 2. Debt equity is raising capital through the creation of a liability. 3. In equity financing, there is debtor and creditor relationship. 4.
A firm has a choice of taking on bank debt or issuing bonds. Under what conditions will it take on bank debt?
3. Which is not considered as a debt security issued by private entities? a. Straight bonds b. Floating-rate corporate notes c. Commercial paper d. Acceptance e. All of the above f. None of the above Which is least likely correct about security valuation? a. The calculated or determined value considers the stream of future cash flows. b. The calculated or determined value equals the market price. c. The calculated or determined value considers the risks involved and the opportunity cost. d. The calculated or determined value allows the investors to evaluate whether a security is overvalued or undervalued. e. All of the above
Which of the following is a disadvantage to a corporation issuing bonds? Group of answer choices A)The required interest payment must be met each period. B)The liquid nature of the bonds makes them attractive to investors who may not want to hold them to maturity. c)The large principal payment due at maturity. d)Both the first and third answers above are both disadvantages. e)The first, second and third answers above are all disadvantages.
when are corporations likely they called the Bonds? A. When the market interest rate is higher than the contract rate, b. When the contract rate is higher than the market rate. C. When their bonds at selling at par with market d. When standard and poor are bullish about treasury bills E. None of the above
Which of the following is FALSE regarding bonds? Long term bonds have greater interest rate risk than do short term bonds. A bond indenture describes the terms of the bond issue. Bonds represent ownership in the company. if interest rates in the market go up, the present value of existing bonds goes down. A bond issuer is legally required to make the interest payments and repay the par value at maturity. Previous Page Next Page Page 12 of 30
What is a bond? Why might a company elect to sell bonds rather than borrow from a bank?
Which of the following statements is NOT true? A. Debt contracts tend to impose more restrictions on the actions of the borrower than the lender B. Larger corporations have easier access to the securities market C. The financial sector is one of the least regulated industries in the US economy D. Collateral is used to secure debt contracts
Can I use the yield to maturity (YTM) on a bond issued by the company as the cost of debt? A Yes, you can use the YTM B No, you cannot use the YTM C Only if the bond is liquid and has not special feature embedded in it D There is not enough information to answer this problem

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