Jumpin Jehosa Phats was incorporated on January 1, 2012 and a year later it needs $10,000,000 to
Question:
Jumpin Jehosa Phats was incorporated on January 1, 2012 and a year later it needs $10,000,000 to expand operations. JJ Phats is the sole shareholder of the corporation.
The corporation is considering three methods to raise the capital:
Issuing common shares at FMV
Issuing preferred stock with par = $1000
Issuing 10 year bonds with par = $1000
You have been hired to determine the best way for the company to obtain the funds needed which might be a single method or combination of methods. Using the following information, discuss the pros and cons of each method and provide necessary calculations to support the position you recommend.
The company is authorized to issue 1,000,000 shares with a par value of $1.00
On January 1, 2013 an appraisal of the company indicates that it has a current value of $25,000,000.
On January 1, 2013 current interest rates are 3.5% APR and rising.
On December 1, 2012 the competition (Leapin Lizards Inc) issued 10,000 ten year cumulative preferred shares with par = $1000 at 3.4%.
CorporationA Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
Step by Step Answer:
Pros and cons of issuing common stock Issuing common stock helps to raise large amounts of money Unlike the loans the funds received from selling comm...View the full answer
