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If a company wants to borrow ($9,000,000) money to expand therecompany from a financial institution instead of issuing eitherbonds or stock - What are the advantages and disadvantages withusing this type of method of financing?

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Jamar Ferry
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22 Jan 2019

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Do you agree or disagree with the following post belowfrom a classmate? Please exaplain with cited sources in the bodytexts and reference. Thank you!

Issuing common stock helps a corporation raise money. Thatcapital can then be used in a number of ways to help the businessgrow, such as to acquire another company, pay debts or to simplyhave access to more cash for general corporate reasons. Companiesmust decide, however, whether issuing common stock is really worthit. Issuing additional shares into the financial markets dilutesthe holding of existing shareholders and reduce their ownership inthe corporation.

Pros

Issuing common stock in the financial markets is an alternativeto issuing debt. Rather than adding more debt to a company'sbalance sheet, which is a financial statement, and budgeting forthe servicing of debt, a company can take a less expensive routeand issue common stock. With stock, an organization does not needto make obligatory interest payments to investor and instead canmake discretionary dividend payments when it has extra cash.

Cons

By selling additional common shares into the financial markets,a company is increasing the number of outstanding shares. When thenew shares enter the market, they dilute the ownership of existingshareholders, according to " The Global issues blog and FinancialAccounting book 9th ed, Pearson." One of the perks of being acommon shareholder is the right to vote on important companydevelopments. Once a greater number of common stocks are sold inthe market, an existing shareholder's ownership stake and votinginfluence diminish. Companies sometimes avoid issuing more commonstock as a courtesy to existing shareholders.

Reference:

The GlobalIssuesBlog,8 Big Advantages and Disadvantages ofcommon Stocks, retrieved 03 April 2017 fromhttp://connectusfund.org/8-big-advantages-and-disadvantages-of-common-stocks

Harrison, W. T.,Horngren, C. T. & Thomas, C. W. (2013).Financial Accounting (9th ed.) Upper Saddle River, NJ:Pearson Education, In

Describe the which option you believe Jeff should pursue. Make sure to explain the advantages and disadvantages of the course of action that you choose.

Jeff Blake is an entrepreneur and owner of Wood Creations, a sole proprietorship. The business, which manufactures tables, chairs, cabinets and other furniture, is growing, and Jeff is exploring the idea of purchasing a brand new manufacturing facility. Because he does not have the money to do so, he believes his options are to borrow the money or to convert the business to a corporation and sell stock.

Describe the which option you believe Jeff should pursue. Make sure to explain the advantages and disadvantages of the course of action that you choose.

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