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30 September, 21:01

All of the following are advantages of bond financing over common stock except:

A. tax savings.

B. higher net income.

C. possibly higher earnings per share.

D. stockholder control is not affected.

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Answers (1)
  1. 30 September, 23:09
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    B. higher net income.

    Explanation:

    Net income refers to the income which is left after all expenses and taxes have been deducted. Such income represents the earnings left for the owners or for retention or for distribution of dividends.

    Bonds refer to source of long term financing wherein the borrower company is required to repay periodic interest on borrowed funds as well as repay the principal at the end of the term.

    Interest payment is an expense which is deducted to arrive at net income. Interest obligations reduce the net income. Hence this does not represent an advantage of bond financing over common stock.
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