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Question

Key advantages of financing through debentures and bonds are?

A Reduces tax liability Correct Answer Incorrect Answer
B Reduces WACC Correct Answer Incorrect Answer
C No control dilution Correct Answer Incorrect Answer
D All of the above Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

Debentures and bonds are both debt instruments that companies can use to raise capital. The key advantages of financing through debentures and bonds are: a. Reduces tax liability: Interest payments made on debentures and bonds are tax-deductible expenses for the company, which reduces its tax liability. b. Reduces WACC: Since debentures and bonds have a lower cost of capital than equity, they can reduce a company's weighted average cost of capital (WACC). c. No control dilution: Unlike equity financing, which involves issuing new shares and diluting ownership, debentures and bonds do not dilute the ownership and control of the existing shareholders.

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