Week 5: Plant Assets and Liabilities – Discussion
Raising Capital (“Cash”) (graded)
Bonds are a unique way of financing only available to corporations and governments. It allows them to bypass the middle man, the bank, and therefore save costs of borrowing. They normally make semiannual interest payments on the principal and the principal is due at some time in the future…it is not uncommon for decades to pass before the principal payment is due.
Imagine that you are the CFO of a company looking to raise capital. (This means that the company wants to receive a large, one time influx of cash.) The CEO asks you to recommend if the company should sell bonds or issue more common stock. Which one method would you recommend to raise capital and why?
