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A Co. requires $1,000,000 capital to expand into new markets. It can raise the capital with 5% bonds or with 4% preferred shares. Which alternative
A Co. requires $1,000,000 capital to expand into new markets. It can raise the capital with 5% bonds or with 4% preferred shares. Which alternative is better from a tax point of view? Issue bonds for a higher return on investment. The company can issue either one because the tax effect is the same. Issue preferred shares because the rate is less. Issue bonds because even though the rate is higher, the interest is tax deductible.
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