Question

Signify TRUE or FALSE as applicable for each of the following items as they pertain to the differences between issuing bonds versus issuing stock in order to raise money.

-       A.       B.	There is no change in ownership rights when bonds are issued.
-       A.       B.	Interest payments on bonds are tax deductible to the bond issuer.
-       A.       B.	Cash dividend payments on stock are tax deductible to the stock issuer.
-       A.       B.	Bond interest does not need to be paid unless the board of directors declares a payment.
-       A.       B.	Bonds will generate significant future cash outflows.

Answer 1

answer	statement	explanation
True	There is no change in ownership rights when bonds are issued	Bonds are a form of debt and do not alter owneship pattern
True	Interest payments on bonds are tax dedcuctible to the bond issuer.	Tax dedcutibility of interest is an attractive feature of bond issue.
False	Cash dividend payments on stock are tax deductible to the stock issuer	Cash dividends are application of income and do not qualify for tax deducton
False	Bond interest does not need to be paid unless the board of directors declares a payment.	Bond interest is to be paid mandatorily and does not need board directors to make a declaration
True	Bonds will generate significant future cash outflows	Cash outflows are inform of interest payments and reapayment of face value of bonds.