Why would a firm issue either bonds or preferred stock if they could issue common stock?

Answer 1

Issuing stock dilutes ownership, bonds and preferred stocks don't (usually) change management. Issuing stock, in most cases, requires that existing stockholders get to sustain their relative ownership share. If, say, founders or special stockholders (venture capital companies, finance companies, say the shares are mortgaged because of some merger buy-out) don't want to change their share of the company's equity or control, then bonds, or the quasi-bonds that preferred stocks are, do not change control.

Answer 2

One big reason is leverage (measured by the debt/equity or debt/asset ratio). To the extent that they can issue bonds, invest that capital in their business, and make extra profits, they are increasing shareholder value because of the additional leverage.

Had they issued more stock for the profitable endeavor they had, they are simply diluting shareholder value as existing shareholders are not reaping the benefits of the new project.

For this reason, it is often seen as a negative sign by the stock market if a company is issuing more stock because it signals that they don't have a lot of high growth projects or that they can't get debt financing at reasonable rates.

Answer 3

Different investors look for different qualities in their investments; the features of preferred stock, i.e., dividends are paid to preferred s/hs before common s/hs, may be more desirable to some. Bonds are "debt" issues which will pay interest to the investors for a period of time until they are repaid in full. Bonds are used strictly for raising capital; stock is issued in exchange for shares of ownership in the company. Hope this helps.

Answer 4

Just to add onto what was allready said companies also prefer to issued bonds or preferred stock because there is less costs to set these instruments up. Especially, bonds most companies preferr this instrument over the others to gain capital.

Answer 5

interior the start, according to danger you ought to allow somebody else take care of your money jointly as you're, as you're saying "a financial fool". a million. No, do no longer borrow out of your 401K, there are outcomes and extremely extremely some tax implications, and it would ultimately finally end up hurting you indoors the long-term. 2. We spend approximately 250-3 hundred each and each and a week (relatives of 6), yet we eat lots. It relies upon on what type of foodstuff you purchase additionally. Steaks are so lots greater high priced than pasta. in case you ought to guard that quantity conveniently, i might say its superb. with connection with individual-friendly, its in all danger heavily greater suitable. i might say the basic 4 person enjoyed ones might spend approximately 550-650 a month. even regardless of the shown fact that it additionally relies upon on the area you reside.