Bonds: Bonds are financial instrument, generally issued to raise a large amount of debt with an assurance to repay the sum with applicable interest. To identify: Advantage or disadvantage of bond financing for given statements.

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Answer 1

Question

Chapter 10, Problem 1QS

To determine

Bonds:

Bonds are financial instrument, generally issued to raise a large amount of debt with an assurance to repay the sum with applicable interest.

To identify: Advantage or disadvantage of bond financing for given statements.

Expert Solution & Answer

Explanation of Solution

a.

Bond is a debt for the company issued to raise funds for a specific period of time. This debt needs to be repaid along with applicable amount of interest.
Bonds do not affect the owner’s control is definitely an advantage for the company as bond holder does not have their stake in the company and hence are not liable to future earning of the company.

Hence, it is an advantage (A) for the company.

b.

If a company earns a lower return with borrowed funds than it pays in interest is a disadvantage for the company.
It is a situation where the rate of interest payments is higher than rate on interest earned on return and hence will lead to more payments than earnings.

Hence, it is a disadvantage (D) for the company.

c.

If a company earns higher return with borrowed funds than it pays in interest is an advantage for the company.
In this case the rates of interest on earnings are higher than rate on interest on payments and hence it will lead to a favorable situation where there are more earnings on return than payments.

Hence, it is an advantage (A) for the company.

d.

Bonds require a payment of periodical interest are not favorable for company and hence is a disadvantage for company.
Bonds require payment of periodical interest payments whether or not company earned a sufficient amount of profits.

Hence, payments need to be made in case of loss also; therefore it is a disadvantage (D) for company.

e.

Interest on bond is tax deductible is definitely an advantage for the company.
Interest payment on bonds can be claimed as deduction at the time of filing of tax return.

Hence, it is an advantage (A) for the company.

f.

Bonds require payment of par value at maturity which is a disadvantage for the company.
This is the least amount to be received by the bond holder at the time of maturity irrespective of the market value of bond. Therefore it can prove to be a disadvantage for the company in case the market value of the bond is less than the par value of bond.

Hence, it is a disadvantage (D) for the company.

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Answer 2

Question

Chapter 10, Problem 1QS

To determine

Bonds:

Bonds are financial instrument, generally issued to raise a large amount of debt with an assurance to repay the sum with applicable interest.

To identify: Advantage or disadvantage of bond financing for given statements.

Expert Solution & Answer

Explanation of Solution

a.

Bond is a debt for the company issued to raise funds for a specific period of time. This debt needs to be repaid along with applicable amount of interest.
Bonds do not affect the owner’s control is definitely an advantage for the company as bond holder does not have their stake in the company and hence are not liable to future earning of the company.

Hence, it is an advantage (A) for the company.

b.

If a company earns a lower return with borrowed funds than it pays in interest is a disadvantage for the company.
It is a situation where the rate of interest payments is higher than rate on interest earned on return and hence will lead to more payments than earnings.

Hence, it is a disadvantage (D) for the company.

c.

If a company earns higher return with borrowed funds than it pays in interest is an advantage for the company.
In this case the rates of interest on earnings are higher than rate on interest on payments and hence it will lead to a favorable situation where there are more earnings on return than payments.

Hence, it is an advantage (A) for the company.

d.

Bonds require a payment of periodical interest are not favorable for company and hence is a disadvantage for company.
Bonds require payment of periodical interest payments whether or not company earned a sufficient amount of profits.

Hence, payments need to be made in case of loss also; therefore it is a disadvantage (D) for company.

e.

Interest on bond is tax deductible is definitely an advantage for the company.
Interest payment on bonds can be claimed as deduction at the time of filing of tax return.

Hence, it is an advantage (A) for the company.

f.

Bonds require payment of par value at maturity which is a disadvantage for the company.
This is the least amount to be received by the bond holder at the time of maturity irrespective of the market value of bond. Therefore it can prove to be a disadvantage for the company in case the market value of the bond is less than the par value of bond.

Hence, it is a disadvantage (D) for the company.

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Answer 3

Question

Chapter 10, Problem 1QS

To determine

Bonds:

Bonds are financial instrument, generally issued to raise a large amount of debt with an assurance to repay the sum with applicable interest.

To identify: Advantage or disadvantage of bond financing for given statements.

Expert Solution & Answer

Explanation of Solution

a.

Bond is a debt for the company issued to raise funds for a specific period of time. This debt needs to be repaid along with applicable amount of interest.
Bonds do not affect the owner’s control is definitely an advantage for the company as bond holder does not have their stake in the company and hence are not liable to future earning of the company.

Hence, it is an advantage (A) for the company.

b.

If a company earns a lower return with borrowed funds than it pays in interest is a disadvantage for the company.
It is a situation where the rate of interest payments is higher than rate on interest earned on return and hence will lead to more payments than earnings.

Hence, it is a disadvantage (D) for the company.

c.

If a company earns higher return with borrowed funds than it pays in interest is an advantage for the company.
In this case the rates of interest on earnings are higher than rate on interest on payments and hence it will lead to a favorable situation where there are more earnings on return than payments.

Hence, it is an advantage (A) for the company.

d.

Bonds require a payment of periodical interest are not favorable for company and hence is a disadvantage for company.
Bonds require payment of periodical interest payments whether or not company earned a sufficient amount of profits.

Hence, payments need to be made in case of loss also; therefore it is a disadvantage (D) for company.

e.

Interest on bond is tax deductible is definitely an advantage for the company.
Interest payment on bonds can be claimed as deduction at the time of filing of tax return.

Hence, it is an advantage (A) for the company.

f.

Bonds require payment of par value at maturity which is a disadvantage for the company.
This is the least amount to be received by the bond holder at the time of maturity irrespective of the market value of bond. Therefore it can prove to be a disadvantage for the company in case the market value of the bond is less than the par value of bond.

Hence, it is a disadvantage (D) for the company.

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Answer 4

Question

Chapter 10, Problem 1QS

To determine

Bonds:

Bonds are financial instrument, generally issued to raise a large amount of debt with an assurance to repay the sum with applicable interest.

To identify: Advantage or disadvantage of bond financing for given statements.

Expert Solution & Answer

Explanation of Solution

a.

Bond is a debt for the company issued to raise funds for a specific period of time. This debt needs to be repaid along with applicable amount of interest.
Bonds do not affect the owner’s control is definitely an advantage for the company as bond holder does not have their stake in the company and hence are not liable to future earning of the company.

Hence, it is an advantage (A) for the company.

b.

If a company earns a lower return with borrowed funds than it pays in interest is a disadvantage for the company.
It is a situation where the rate of interest payments is higher than rate on interest earned on return and hence will lead to more payments than earnings.

Hence, it is a disadvantage (D) for the company.

c.

If a company earns higher return with borrowed funds than it pays in interest is an advantage for the company.
In this case the rates of interest on earnings are higher than rate on interest on payments and hence it will lead to a favorable situation where there are more earnings on return than payments.

Hence, it is an advantage (A) for the company.

d.

Bonds require a payment of periodical interest are not favorable for company and hence is a disadvantage for company.
Bonds require payment of periodical interest payments whether or not company earned a sufficient amount of profits.

Hence, payments need to be made in case of loss also; therefore it is a disadvantage (D) for company.

e.

Interest on bond is tax deductible is definitely an advantage for the company.
Interest payment on bonds can be claimed as deduction at the time of filing of tax return.

Hence, it is an advantage (A) for the company.

f.

Bonds require payment of par value at maturity which is a disadvantage for the company.
This is the least amount to be received by the bond holder at the time of maturity irrespective of the market value of bond. Therefore it can prove to be a disadvantage for the company in case the market value of the bond is less than the par value of bond.

Hence, it is a disadvantage (D) for the company.

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Answer 5

Chapter 10, Problem 1QS

To determine

Bonds:

Bonds are financial instrument, generally issued to raise a large amount of debt with an assurance to repay the sum with applicable interest.

To identify: Advantage or disadvantage of bond financing for given statements.

Expert Solution & Answer

Explanation of Solution

a.

Bond is a debt for the company issued to raise funds for a specific period of time. This debt needs to be repaid along with applicable amount of interest.
Bonds do not affect the owner’s control is definitely an advantage for the company as bond holder does not have their stake in the company and hence are not liable to future earning of the company.

Hence, it is an advantage (A) for the company.

b.

If a company earns a lower return with borrowed funds than it pays in interest is a disadvantage for the company.
It is a situation where the rate of interest payments is higher than rate on interest earned on return and hence will lead to more payments than earnings.

Hence, it is a disadvantage (D) for the company.

c.

If a company earns higher return with borrowed funds than it pays in interest is an advantage for the company.
In this case the rates of interest on earnings are higher than rate on interest on payments and hence it will lead to a favorable situation where there are more earnings on return than payments.

Hence, it is an advantage (A) for the company.

d.

Bonds require a payment of periodical interest are not favorable for company and hence is a disadvantage for company.
Bonds require payment of periodical interest payments whether or not company earned a sufficient amount of profits.

Hence, payments need to be made in case of loss also; therefore it is a disadvantage (D) for company.

e.

Interest on bond is tax deductible is definitely an advantage for the company.
Interest payment on bonds can be claimed as deduction at the time of filing of tax return.

Hence, it is an advantage (A) for the company.

f.

Bonds require payment of par value at maturity which is a disadvantage for the company.
This is the least amount to be received by the bond holder at the time of maturity irrespective of the market value of bond. Therefore it can prove to be a disadvantage for the company in case the market value of the bond is less than the par value of bond.

Hence, it is a disadvantage (D) for the company.

Answer 6

Chapter 10, Problem 1QS

To determine

Bonds:

Bonds are financial instrument, generally issued to raise a large amount of debt with an assurance to repay the sum with applicable interest.

To identify: Advantage or disadvantage of bond financing for given statements.

Expert Solution & Answer

Explanation of Solution

a.

Bond is a debt for the company issued to raise funds for a specific period of time. This debt needs to be repaid along with applicable amount of interest.
Bonds do not affect the owner’s control is definitely an advantage for the company as bond holder does not have their stake in the company and hence are not liable to future earning of the company.

Hence, it is an advantage (A) for the company.

b.

If a company earns a lower return with borrowed funds than it pays in interest is a disadvantage for the company.
It is a situation where the rate of interest payments is higher than rate on interest earned on return and hence will lead to more payments than earnings.

Hence, it is a disadvantage (D) for the company.

c.

If a company earns higher return with borrowed funds than it pays in interest is an advantage for the company.
In this case the rates of interest on earnings are higher than rate on interest on payments and hence it will lead to a favorable situation where there are more earnings on return than payments.

Hence, it is an advantage (A) for the company.

d.

Bonds require a payment of periodical interest are not favorable for company and hence is a disadvantage for company.
Bonds require payment of periodical interest payments whether or not company earned a sufficient amount of profits.

Hence, payments need to be made in case of loss also; therefore it is a disadvantage (D) for company.

e.

Interest on bond is tax deductible is definitely an advantage for the company.
Interest payment on bonds can be claimed as deduction at the time of filing of tax return.

Hence, it is an advantage (A) for the company.

f.

Bonds require payment of par value at maturity which is a disadvantage for the company.
This is the least amount to be received by the bond holder at the time of maturity irrespective of the market value of bond. Therefore it can prove to be a disadvantage for the company in case the market value of the bond is less than the par value of bond.

Hence, it is a disadvantage (D) for the company.

Answer 7

Chapter 10, Problem 1QS

To determine

Bonds:

Bonds are financial instrument, generally issued to raise a large amount of debt with an assurance to repay the sum with applicable interest.

To identify: Advantage or disadvantage of bond financing for given statements.

Answer 8

Expert Solution & Answer

Explanation of Solution

a.

Bond is a debt for the company issued to raise funds for a specific period of time. This debt needs to be repaid along with applicable amount of interest.
Bonds do not affect the owner’s control is definitely an advantage for the company as bond holder does not have their stake in the company and hence are not liable to future earning of the company.

Hence, it is an advantage (A) for the company.

b.

If a company earns a lower return with borrowed funds than it pays in interest is a disadvantage for the company.
It is a situation where the rate of interest payments is higher than rate on interest earned on return and hence will lead to more payments than earnings.

Hence, it is a disadvantage (D) for the company.

c.

If a company earns higher return with borrowed funds than it pays in interest is an advantage for the company.
In this case the rates of interest on earnings are higher than rate on interest on payments and hence it will lead to a favorable situation where there are more earnings on return than payments.

Hence, it is an advantage (A) for the company.

d.

Bonds require a payment of periodical interest are not favorable for company and hence is a disadvantage for company.
Bonds require payment of periodical interest payments whether or not company earned a sufficient amount of profits.

Hence, payments need to be made in case of loss also; therefore it is a disadvantage (D) for company.

e.

Interest on bond is tax deductible is definitely an advantage for the company.
Interest payment on bonds can be claimed as deduction at the time of filing of tax return.

Hence, it is an advantage (A) for the company.

f.

Bonds require payment of par value at maturity which is a disadvantage for the company.
This is the least amount to be received by the bond holder at the time of maturity irrespective of the market value of bond. Therefore it can prove to be a disadvantage for the company in case the market value of the bond is less than the par value of bond.

Hence, it is a disadvantage (D) for the company.