Case Interview Prep

Answer - D - Big Bertha uses bonds, as opposed to common stock, because it was a lower cost option than issuing the common stock. Plus, the interest Big Bertha has to pay out is tax deductible to the company.

Key Takeaway: The advantages for a corporation to issue bonds instead of common stock is that they cost less, due to the tax deductibility of the interest payments and because the bond is a formal contract to pay the interest and principal payments to the bondholders. Dividends for common stock are not tax deductible. Administrative costs are not a factor when choosing between common stock and bonds.