Indicate whether each of the following is an advantage or a disadvantage of using long-term bond financing rather than issuing common stock.

1. Interest paid on bonds is tax-deductible.

2. Investments are sometimes not as successful as planned.

3. Financial leverage can have a negative effect when investments do not earn as much as the interest payments on the related debt.

4. Bondholders do not have voting rights in a corporation.

5. Positive financial leverage may be achieved.

Types of Long-Term Liabilities