Which of The Following Is Not An Advantage of Issuing Bonds Instead of Common Stock? (Answer)

Which of the following is not an advantage of issuing bonds instead of common stock?

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Which of the following is not an advantage of issuing bonds instead of common stock?

Question:

Which is not an advantage of issuing bonds instead of common stocks:

• Possible tax savings
• There’s no impact on the stockholder control
• Common shareholders may have their income increase
• The common stock earnings per share may be lower
• None of the above 

Answer:

Earnings per share on common stock may be lower.

The earnings per share on common stock may be lower is not an advantage of issuing bonds instead of common stocks.

Bond Advantages

When issuing bonds, instead of common stock, a company may be able to deduct the interest payments as an expense for tax purposes whereas a dividend payment is not a deductible expense.

Furthermore, bondholders do not control the corporation. 

As a result, the issuance of bonds does not dilute the percentage ownership of current shareholders and thus does not impact the shareholders’ control of the corporation.

Finally, income to common shareholders may increase to the extent the company is able to finance a project at a low interest rate and generate higher returns for the shareholders.

Takeaways 

Let’s look at a summary of our findings.

Which of the following is not an advantage of issuing bonds instead of common stock?:

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