Which of the following is an advantage of issuing bonds for a corporation?

• A. Interest expense on bonds is tax-deductible.
• B. Bonds do not require repayment of principal.
• C. Bondholders have voting rights in the company.
• D. Issuing bonds increases ownership dilution.

Answer: (A)

Verified step by step guidance

1. Understand the concept of bonds: Bonds are a form of debt financing where a corporation borrows money from investors and agrees to pay back the principal amount along with periodic interest payments.
2. Analyze the tax implications: Interest expense on bonds is considered a cost of borrowing and is tax-deductible, meaning it reduces the corporation's taxable income, which is an advantage for the company.
3. Evaluate repayment obligations: Bonds require repayment of the principal amount at maturity, which is a liability for the corporation. This statement is incorrect as an advantage.
4. Consider voting rights: Bondholders do not have voting rights in the company, unlike shareholders. This is not an advantage of issuing bonds.
5. Assess ownership dilution: Issuing bonds does not dilute ownership because bondholders are creditors, not owners. This is an advantage compared to issuing equity, which would dilute ownership.