Debt versus Equity Offering Size. In the aggregate, debt offerings are much more common than equity...

Debt versus Equity Offering Size. In the aggregate, debt offerings are much more common than equity offerings and typically much larger as well. Why?

Debt versus Equity Flotation Costs. Why are the costs of selling equity so much larger than the costs of selling debt?

Bond Ratings and Flotations Costs. Why do noninvestment-grade bonds have much higher direct costs than investment-grade issues?

Expert Solution

From the investment bank perspective, debts are relatively easier and less riskier to sell compared to equities. Large chunks of debt can be sold to comparatively smaller number of buyers like pension funds and insurance companies compared to the equity securities. Debt securities are also easier to be priced compared to the equity securities.

Equity holders will always expect a higher return on investment than the debt holders as they assume the highest risk. Equity holders are always paid after paying the creditors and not entitled to the repayment of a contractual obligation on their capital.

Non investment grade bonds are riskier and difficult to market from the investment bank's perspective and therefore have higher direct costs compared to the investment grade bonds. Non investment grade bonds provide with higher yields compared to investment grade bonds but its speculative, unsecured nature and higher chances of default of the non investment grade bonds lead to a lower credit rating.

jeff jeffy answered 4 months ago

the cost of common equity financing is more difficult to estimate than the costs of debt...

the cost of common equity financing is more difficult to estimate than the costs of debt anf preferred equity. explain why? Also key issues in calculation of cost of equity and cost of debt.

Compare and contrast new debt offerings to new offerings of equity in the form of stock....

Compare and contrast new debt offerings to new offerings of equity in the form of stock. Specifically, be sure to comment on the direct and indirect costs of new public debt versus new public equity.

4. Cost of debt versus cost of equity. Because the cost of debt is lower than...

4. Cost of debt versus cost of equity. Because the cost of debt is lower than the cost of equity, firms must increase their use of debt as much as possible to increase the firm’s value. What is your answer to this argument?

Why would equity cost more than debt?

The WACC formula implies that debt is “cheaper” than equity, that a firm with more debt...

The WACC formula implies that debt is “cheaper” than equity, that a firm with more debt could use lower discount rate. Does this make sense? Explain briefly

Why is a debt/equity ratio usually between 0.5 to 2.5 but the debt/equity percentage much, much...

Why is a debt/equity ratio usually between 0.5 to 2.5 but the debt/equity percentage much, much higher like 384% for example with Lumen Technologies?

Smoking remains more common in much of Europe than in the United States. In the United...

Smoking remains more common in much of Europe than in the United States. In the United States, there is a strong relationship between education and smoking: well-educated people are less likely to smoke. Does a similar relationship hold in France? Here is a two-way table of the level of education and smoking status (nonsmoker, former smoker, moderate smoker, heavy smoker) of a sample of 467 French men aged 20 to 60 years. The subjects are a random sample of men...

Why the shelf registration is more common in bond market than in equity market?

It is time for the annual review of benefit offerings at Medfirst Pharmaceuticals. With more than...

It is time for the annual review of benefit offerings at Medfirst Pharmaceuticals. With more than 1,500 employees and growth on the horizon, Director of Compensation Harold Jones knows that he must ensure that the benefit package is attractive to potential new employees while still meeting the needs of current employees. Medfirst has a diverse workforce that includes scientists, administrators, support staff, and field sales employees. Harold thinks that the current package is attractive but that more options might add...

The common good is very much an ongoing goal more than a concrete reality, particularly as...

The common good is very much an ongoing goal more than a concrete reality, particularly as the conditions for fulfillment are constantly changing amid struggles for power. In other words, the common good is a journey more than a destination, an ongoing praxis (practice and reflection). Please give concrete examples of where society could benefit from an emphasis on the common good, and how focusing on the good of all might be better than prevailing ways of seeing the world.

Question