The corporation can deduct the interest expense for tax purposes is the advantage of financing corporations.
What is financing corporations?
- Corporate finance is a branch of finance that deals with how corporations handle activities such as investment decisions, funding sources, and capital structuring. Corporate finance is primarily concerned with increasing shareholder value through long and short-term financial planning as well as the implementation of various strategies. Corporations can be financed through the use of bonds as well as common stock.
- There are several advantages to issuing bonds rather than common stock, including the fact that interest on bonds and other debt is deductible on the corporation's income tax return, whereas dividends on common stock are not.
- It should be noted that one potential advantage of financing corporations with bonds rather than common stock is that the interest expense is tax deductible for the corporation.
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