Stock Case

Published: 2021-06-29 06:58:59
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Category: Business

Type of paper: Essay

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To raise company's capital companies can use two different financing methods. Issuing common stocks and bonds are the methods. There are three advantages when a company chooses issuing bonds other than issuing common stocks. The first advantage of issuing bonds is current owners are able to hold full control of the company because bondholders do not have voting right like common stock holders. The second advantage is earnings per share may be higher because financing bonds do not add shares of common stock are issued. Even though bond interest expense reduces net income usually earning per share is lower under bond financing. Last advantage of bond financing is tax saving result. Bond interest is deductible for tax purposes, dividends on stock are not offer this (Weygandt & Kimmel 2010). The determine factor that is determining a bond is sold at a discount, face, or premium is the relationship between market interest rate with contractual rate of interest. To attract investors companies have to offer a better profit rate so depend on the market interest rate companies sell bonds at different rates.

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