Question

The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common stock, includes which of the following?

Answer 1

The advantages of obtaining long-term funds by issuing bonds include control, scheduled interest payments, and no dilution of ownership.

Step-by-step explanation:

The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common stock, include:

1. Control: When a firm issues bonds, it maintains control of its operations and is not subject to shareholders. This allows the firm to make decisions independently without having to answer to a board of directors or shareholders.
2. Interest Payments: When a firm issues bonds, it commits to scheduled interest payments. However, these payments are fixed and do not change regardless of the firm's income. This can be advantageous for the firm as it allows for better financial planning and budgeting.
3. No Dilution of Ownership: Issuing bonds does not result in dilution of ownership. Unlike issuing additional common stock, the firm does not have to sell off its ownership to the public. This allows the firm to maintain control and ownership.