Debt Financing Benefits of Common Stocks

Related BrainMass Solutions

• Financing a Business and Holding Stocks

  I would tell Slim that although I agree with him to an extent, I would also remind him of the benefits of being a preferred stockholder.

• Explain financial leverage, tax implications of debt

  on certain types of debt financing only.

• Financial Planning & Risk

  The use of debt for financing will be more profitable than equity financing in terms of costs and benefits (Madura, 2007).

• Weighted Average Cost of Capital

  Exercise 1 The Director of Finance of Neolpharm Corporation needs to obtain financing for a major project expansion of the Corporation and is looking various alternatives, such as issue common Stocks, Preferred stocks and Debts (bonds).

• Corporate Bonds vs Preferred Stocks

  With corporate bonds, corporations can try to create a debt security that is really equity in order to obtain the tax benefits of debt and the bankruptcy benefits of equity (Brigham & Houston, 2007).

• Risk Reduction and Mergers

  The financing method will add additional debt, lead to higher debt cost on current and future debt and payment will have to be made to the company handling the financing.

• Discussing Long-Term Financing Stocks and Bonds

  Why might an organization choose one versus the other as a long-term financing instrument? Stocks vs.

• What is the effect of debt and equity transactions on a company's financial accounts?

  The journal entries are Debit: Cash $100 Credit: Note Payable $100 Equity Financing: The company issues 50 shares of common stocks (par value $1.5) to the market. The fair value for the common stock is $2 per share.

• Stocks, Bonds, and Cost of Capital

  Suppose there is a capital structure of 30% debt, 20% preferred stock, and 80% common stock. The cost of financing with retained earnings is re = 13%, the cost of preferred stock financing is rPS = 6%, and the before-tax cost of debt is rd = 10%.