Question

Chunky Chicken, Inc., announced yesterday that it plans to issue $100 million in debenture bonds to fund the expansion of its fast food chain of restaurants. In financial terms, this means:

A. The corporation will borrow $100 million worth of long-term financing. The bond issue will not carry any collateral.B. The corporation will issue $100 million worth of equity financing. The bond issue will be backed by the property and buildings purchased with the funds.C. The corporation will borrow $100 million worth of long-term financing. The issue will be backed by the property and buildings purchased with the funds.D. The corporation will issue $100 million worth of interest free bonds. Financiers will be paid from the revenues created by the individual franchises.

Answer 1

Answer:

A. The corporation will borrow $100 million worth of long-term financing. The bond issue will not carry any collateral.

Explanation:

The reason is that debentures are the long term borrowings at a fixed rate of interest. Debentures are long term finance source for the borrowers and carries no collateral with it. This means that in the given scenario, the company will borrow $100 million worth of long term financing and as debenture carry no collateral the right option is A.