Financial experts are familiar with various ways companies can raise capital for financing the firm. Each...

Financial experts are familiar with various ways companies can raise capital for financing the firm. Each of the several sources of funds has associated with it some advantages as well as drawbacks that should be considered in choosing among them. Compare and contrast the advantages and disadvantages for financing the firm by issuing common stock versus issuing corporate bonds versus obtaining loans from private lenders.

Expert Solution

	Common Stock	Corporate Bonds	Obtaining loans from private lenders
Advantages	There are no fixed payment to be made to shareholders	Corporate Bonds are flexible way of raising the debt capital for a company. It can be either secured or secured and the company can decide which priority they take over other debts.	The private loans are easily available without much formality and the money available from this source is quick

	No Fixed Maturity date	Corporate bonds can provide stability by issuing fixed rate bonds which provides protection against variable interest rates or the economic rates	There can be customized lending terms with regard to duration, repayment

	Increases the creditworthiness of the company which leads to increase in the availability of future debt at lower cost	They do not dilute the value of existing shareholders

	This serve as a reserve of borrowing capacity	They help in maintaining the cash in the business because the redemption date for these bonds are several years after the issue






Disadvantages	Issuing common stock leads to extending voting rights and even control to new shareholders	Regular interest payment to bondholders, the interest might be fixed but will have to be paid even if the company is making loss	The interest rates are generally higher

	Shareholders will need to be paid a percentage of profits rather than a fixed payment	There can be various restrictions placed by the bondholders to protect their interest from default	The loan period is generally shorter

	Cost of underwriting and issuing common stock is high	The company will have to comply with various listing rules and regulations to increase the tradability of the bonds listed on the exchange

	Dividends which are paid to stockholders are not deductible as expense	The potential of the business share value would be reduced if profits decline this is because the bond interest payments take priority over dividends

jeff jeffy answered 2 years ago

Companies have two quick ways to raise capital for growth: they can sell stock (Equity) or...

Companies have two quick ways to raise capital for growth: they can sell stock (Equity) or they can borrow (debt, like bonds or mortgages). Each of these methods carries some "pros" and "cons" - what is the advantages and disadvantages of raising capital through borrowing (debt). Explain (in two or three sentences) the advantages and disadvantages, citing at least one advantage and at least one disadvantage, of borrowing. Explain WHY something is an advantage or WHY it is a disadvantage....

List and explain different ways a firm can raise capital. Include in your discussion the different...

List and explain different ways a firm can raise capital. Include in your discussion the different underwriting methods firms could use.

Financial bootstrapping is minimizing the need for financial capital and finding unique ways of financing new...

Financial bootstrapping is minimizing the need for financial capital and finding unique ways of financing new businesses, such as obtaining financial resources from family and friends. If you can only choose one loan from a friend, which loan should you choose based on the perspective of the principle of entrepreneurial finance, explain your reasons, can also be explained by giving calculations? A friend lends $ 30,000 for 1 year if you agree to pay back $ 5,000 in interest plus...

Analyze and discuss some of the ways in which a hospital can raise capital to operate...

Analyze and discuss some of the ways in which a hospital can raise capital to operate more efficiently,

Question 2. (a) What are the two ways that companies can raise common equity? List them...

Question 2. (a) What are the two ways that companies can raise common equity? List them and explain each. (20 points) (b) Based on the relationship between the Return on investment and Cost of capital, when should companies take or considers the project? (c) List two types risks associated with projects

{capital financing} Are the ways in which hospitals obtain capital different from the ways in which...

{capital financing} Are the ways in which hospitals obtain capital different from the ways in which doctors obtain capital? Why?

Companies can raise new equity funding through a number of ways. A rights issue offers existing...

Companies can raise new equity funding through a number of ways. A rights issue offers existing shareholders the opportunity to purchase additional shares at a discounted price, based on the number of shares an investor already holds. A private share placement is a share issue offered to specific investor groups rather than the public. What are the benefits and costs/ disadvantages for a listed firm looking to raise equity capital through a rights issue? Compared to a rights issue,...

Public companies can raise share capital by providing prospectus and encouraging public subscription of shares (i.e.,...

Public companies can raise share capital by providing prospectus and encouraging public subscription of shares (i.e., public share float) or by issuing shares privately to institutional investors (i.e., private placement). Discuss tworeasons why some companies may prefer private placement over public share float.

A colleague is thinking about pursuing equity financing for their business to raise capital and has...

A colleague is thinking about pursuing equity financing for their business to raise capital and has asked you as the consultant for advice. He wants to know what an entrepreneur needs to know before pursuing debt financing options. Analyze the advantages and disadvantages of equity financing. The colleague also wants to know if the business is successful, what does it mean for the investor and the entrepreneur. The summary would apply and include these points: (1) Explain how equity financing...

List and describe ways managers can create firm value through financing alternatives. 175 words

Question