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Assume that our class owns corporation A and further that wecontrol all issued stock....

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Accounting

Assume that our class owns corporation A and further that wecontrol all issued stock. We need capital for expansion; however,we are unable to make additional contributions. Do you recommendthat we issue stock to new investors or obtain debt financingthrough the sale of bonds? Explain your answer. What are thebenefits and drawbacks of each approach?

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4.4 Ratings (883 Votes)
Advantages of issuing stock to new investors You have less risk with equity financing because you dont have any fixed monthly loan payments to make This can be particularly helpful with startup businesses that may not have positive cash flows during the early monthsIf you have credit problems equity financing may be the only choice for funds to finance growth Even if debt financing is offered the interest rate may be too high and the payments too steep to be acceptableEquity financing does not take funds out of the business Debt loan repayments take funds out of the companys cash flow reducing the money needed to finance growth Equity investors do    See Answer
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In: AccountingAssume that our class owns corporation A and further that wecontrol all issued stock. We...Assume that our class owns corporation A and further that wecontrol all issued stock. We need capital for expansion; however,we are unable to make additional contributions. Do you recommendthat we issue stock to new investors or obtain debt financingthrough the sale of bonds? Explain your answer. What are thebenefits and drawbacks of each approach?

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