Provide a DETAILED presentation of the characteristics of the various EXTERNAL financing alternatives, including the advantages and disadvantages of each.
Include a recommendation of which alternative (or combination of alternatives) should be used to finance the investment.
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External financing alternatives
b. Preferred stock.
c. common stock.
Bonds are most type of securities. Bonds are relatively safe investments. Companies or corporation who need funds for medium term may prefer debts finance as it relives them from paying fixed dividend. Bonds are not risk less investments like other type of securities but they are fairly safe therefore investors would like to invest in Bonds.
A bond is a long term contract under which borrower agrees to make payment of interest and principal on specific dates. Bonds are classified in four main types, such as Treasury, Corporate, Municipal and Foreign. Each type differs with respect to expected return and degree of risk.
1 Treasury: Treasury bonds are Government Bonds issued by Federal Govt. Treasury bills are sold to finance federal expenditure. Those bonds have no default risk. But price will decline if interest rates rise. Treasury bills are issued for one year less than one year. The U.S. Treasury issues bills or notes.
2 Corporate Bonds: These bonds are issued by corporations. They are exposed to default risk. Different corporate bonds have different levels of default risks, depending upon issuing companies' characteristics and terms of specific bonds.
Municipal [al Bonds: Municipal Bonds are issued by state or local Governments. Interest carried on most municipal bonds is exempt from federal taxes and also from state taxes. Consequently Municipal bonds carry ...
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