Asked by Courtney Venters on May 12, 2024
Verified
A corporation undertaking an expansion project issues 20 year bonds to finance the project. Which of the following is most likely true?
A) The company does not need to make payments on the bonds unless it has positive earnings for the year.
B) The company has borrowed money and must pay interest on the amount borrowed.
C) The company did not have any outstanding bonds when it issued the new bonds.
D) The bonds must have sold at a premium since expansion projects are generally risky.
E) If the company could have issued preferred stock instead, they would have.
Expansion Project
An investment endeavor aimed at increasing the size, capacity, or capability of an existing facility or system to accommodate growth.
Interest Payments
Interest payments are the costs incurred by an entity for borrowing money, which are paid at agreed intervals to the lender.
- Understand the reasons behind issuing bonds for financing projects and the implications for a company's financial management.
Verified Answer
TS
Tejveer SinghMay 17, 2024
Final Answer :
B
Explanation :
Issuing bonds means the company has borrowed money and is obligated to pay interest on the borrowed amount, regardless of its earnings.
Learning Objectives
- Understand the reasons behind issuing bonds for financing projects and the implications for a company's financial management.