DECA+ Business Management and Administration Practice Exam

Why might a corporation issue bonds?

1. To restructure employee salaries

2. To cover operational expenses

3. To increase their customer base

4. To reduce their stock prices

The correct answer is: To cover operational expenses

When a corporation issues bonds, it is primarily seeking to raise capital for various purposes, one of which can include covering operational expenses. By issuing bonds, the corporation borrows money from investors who purchase the bonds, agreeing to pay back the principal along with interest at a later date. This method of financing can be particularly advantageous for companies that require immediate funds for day-to-day operations, expansion projects, or to manage cash flow effectively. In contrast, restructuring employee salaries is usually handled through internal budgeting and financial management methods rather than through debt financing. Increasing a customer base is achieved through marketing and sales strategies, not directly funded by bond issuance. Reducing stock prices does not align with the goals of a corporation; rather, companies aim to maintain or increase their stock values as they issue bonds, thereby managing their overall financial strategy.