Question

If a publicly traded company needed funds to expand its business and was deciding between issuing more company stock versus selling corporate bonds, give an advantage and disadvantage of issuing more stock and an advantage and disadvantage of selling corporate bonds to raise the needed funds.

Answer 1

ADVANTAGES AND DISADVANTAGES OF ISSUING EQUITY AND CORPORATE BONDS-

COMPANY STOCK (EQUITY)-

Advantage	Disadvantage
Issuing common stocks does not create any any additional interest burden on the company. Company will have to pay to equity holders only incase any surplus is left after repaying other stakeholders.	The share holding gets diluted and EPS gets reduced as now the profit/surplus will be required to be shared between more shareholders.

CORPORATE BONDS-

Advantage	Disadvantage
The share holding does not gets diluted and number of shareholders remain the same. Any additional profit earned by company after repaying other stakeholders will be distributed amongst the orignal shareholders in the same profit sharing ratio.	Issuing Bonds will increase the Interest burden on the company.The company will now be required to pay fixed interest to the bondholders whether or not the company earns profit.

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