In: Accounting
Your Company needs $10,000,000 for a plant expansion. You can obtain the funds by either issuing common stock or issuing bonds. Common stock is currently trading at $100 per share and the effective rate for bonds is 5%. What factors should be considered in making this decision? What decision will you make?
Does your response change if stock is trading at $10,000 per share and interest rates are 15%?
Your response must be a minimum of 50 words.
Answer part 1
Common stock is currently trading at $100 per share and the effective rate for bonds is 5%
It is advisable to consider issue of bonds instead of common stock in order to obtain fund.
Factors / Reasons to consider for decision making :
Answer Part 2
Common stock is trading at $10,000 per share and interest rates are 15%
In this situation it is advisable to consider issue of common stock instead of bonds in order to obtain fund.
Factors / Reasons to consider for decision making :