Answer to Question #57862 in Finance for abdiaziz

Question

Discuss the advantages and disadvantages of issuing common stock versus long-term debt.

Answer 1

Either issuing stock or issuing bonds works, but there are some advantages and disadvantages.
Advantages of issuing stock:
Issuing stock gives ability not to owe any money to investors, rising stock can also increase credit rating of the company and make it easier to borrow money in the future.
Disadvantages of issuing stock:
By issuing shares the company gives each investor a piece of ownership. The company also must pay dividends from its profits.
Advantages of issuing bonds:
Bondholders don't own a piece of business and don't participate in decision-making. The company also can issue them whenever it needs money.
Disadvantages of issuing bonds:
The company must pay regular interest payments to bondholders, even if it face losses.