Accounting Unit 6 q11

Identify and discuss the advantages and disadvantages of bond financing.

Buy Free Custom «Accounting Unit 6 q11» Essay Paper paper online


* Final order price might be slightly different depending on the current exchange rate of chosen payment system.

Order now

If a company is looking for options to increase capital to expand their business or for any other purposes, two main ways to do it could be identified. Company could sell a part of ownership in a company in a form of stock. As a second option company could issue a bond and receive the loan in this form. Each way has both advantages and disadvantages, but let’s focuses on bond financing. A bond issuer's should pay a value called the par value of the bond plus interest.

Three main advantages of bond financing which could be identified are:

Owner control is not affected by bonds issuing. No matter how much you borrow, you will still maintain executive control of your company.

Stay Connected

Live Chat Order now
Stay Connected

Tax deductible interest on bonds. Many municipal bonds are state taxes deductable. Moreover, some bonds also free from federal taxes. Lower taxes result in higher gains which is an additional reason for investing in bonds.

Gain return on equity with bond issuing. If a company earns a greater return using borrowed funds than it pays on those funds in interest, it increases company`s return on equity.

There are two main disadvantages of bond financing:

1. Lower return on equity with bond issuing. If a company earns a lower return using borrowed funds than it pays on those funds in interest, it decrease company`s return on equity. Such risk of financial leverage is likely to arise when a company during periods of net losses or low income.

Limited time Offer

Get 19% OFF

2. Bonds require payment of the par value at maturity plus interest. Bond payments could be onerous when company`s cash flow is low.

Therefore, every company should take into account both advantages and disadvantages of bond financing because it could affect company`s financial stability.

Related Accounting essays

  1. FASB Takes up Insurance Accounting essay
  2. IFRS Assignment essay
  3. Accounting essay
  4. Regression Analysis essay
  5. Auditing Information Systems essay
  6. Principal Finance Interview essay
  7. Flexible Budgeting (Advanced Managerial Accounting) essay
  8. Targer Corp. Budget Estimates essay
  9. The Need for Accounting essay
  10. Australian Funghi Importer Pty Ltd essay


Preparing Orders


Active Writers


Support Agents

Limited offer
Get 15% off your 1st order
get 15% off your 1st order
  Online - please click here to chat