Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 180

Which of the following is true of bond financing, compared to common stock, when all other variables are equal?

Answer options

• A. Lower shareholder control.
• B. Lower indebtedness.
• C. Higher company earnings per share.
• D. Higher overall company earnings.

Correct answer: A

Explanation

The correct answer is A because bond financing typically results in lower control for shareholders compared to common stock, as bondholders do not have voting rights. Options B, C, and D are incorrect because bond financing generally increases a company's indebtedness, does not guarantee higher earnings per share, and does not inherently lead to higher overall company earnings.