Hammersmith Inc. (HI), a publicly traded company, is looking to raise some new capital for an investment in equipment. Currently, HI has a debt-to-equity ratio of 1.5 and a loan covenant that requires HI's debt-to-equity ratio to be less than 1.8. In addition, the industry has just entered a downturn, and HI is concerned that its revenues for next year will be lower than originally forecast. HI is considering two alternatives to raise this new capital: to issue either bonds or preferred shares with no debt-like characteristics (that is, no mandatory redemption requirements). 

Make a recommendation on the type of financing HI should issue at this time

Answer rating: 100% (QA)

Given the situation you described I recommend that Hammersmith Inc HI consider issuing preferred shares with no debtlike characteristics as the preferred option for raising capital at this time Heres ... View the full answer