Chapter 10, Problem 1Q

From the perspective of the issuer, what are some advantages of issuing bonds instead of stock?

To determine

State the advantages of issuing bonds instead of stock

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Stock: It refers to a security issued in a form of certificate and implies the right of ownership of an investor over a portion of company’s earnings and assets.

Some advantages of issuing bonds instead of stock are as follows:

• Issue of bonds is less expensive than issue of shares.
• The interests on bonds are tax deductible. However, dividends from shares are not tax deductible.
• Issue of bonds does not affect the percentage of ownership of an investor in the company.
• Stockholders’ control is not affected in the bonds.
• Earnings per share of bonds are high compare to common stock.