Bongo Company's board of trustees knows the company needs to raise some serious cash to finance...

Bongo Company's board of trustees knows the company needs to raise some serious cash to finance expansion. They are considering three options to raise the needed cash. They can issue bonds, issue common sock or issue preferred stock. Compare and contrast the advantages and disadvantages of each of these approaches to financing. Which one would you suggest Bongo use to raise the funds and why?

Expert Solution

The three options that the company is considering to raise money are:

1) Issue of bonds: The main advantage of issuing bond is that the company can get tax benefits on the interest paid to the bondholders. The disadvantage is that the company will have to incur a constant expenditure in the form of interest payment to the bondholder.

2) Issue of common stock: The advantage of issuing common stock is that the company will be able to raise money from the public and the stock market easily. The disadvantage is that the stockholders will have to be paid dividend when the company earns profits.

3) Issue of preferred stock: The issuing of preferred stock has more disadvantages than advantages. The disadvantage is that the voting rights of the company will be in the hands of the preferred stockholder as well.

From the above information, it is clear that issuing common stock is the best option to raise money.

jeff jeffy answered 3 months ago

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