Question

29.

One of the key differences between a corporation choosing to raise additional funds through issuing stocks rather than bonds is:

Multiple Choice

• The purchaser of a bonds generally has the right to vote in elections for the board of directors and on proposed operational alterations but stockholders have no voting rights.

• There is a legal requirement for corporations to pay dividends but they can choose to pay coupons and the par value on bonds.

• The value of a stock is the present value of future expected payments discounted at the appropriate risk adjusted discount rate but this is not true of a bond.

• None of these answers are correct.

• The payments for bonds are tax deductible for the corporation but payments for stock are not.

Answer 1

Option E is correct. The payments for bonds are tax deductible for the corporation but payments for stock are not.

Interest paid on the Debt issued are tax deductible, so they are comperative cheap source of finance. While dividend paid to the shareholders is not tax deductible. Dividend is appropriation of profits.

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