Elliot is considering how to fund a new project that management has recently approved. He assesses the number of options available to him, and has come up with 4 plans.

1) He can issue new stock,

2) He can issue 5 year, 7% coupon bonds,

3) He can issue convertible bonds which pay 6% coupons and can be converted to 15 shares of the firm's stock (current share price= $45),

4) He can issue a callable bond, 6% coupon, with call price of $1050 (assume investors demand a return of 7% for all 3 bond types).

Discuss the pros and cons of each payment method as it relates to both the firm and the investor?

Answer rating: 100% (QA)

Issuing new stock Pros for the firm Issuing new stock can provide the firm with additional capital without incurring any interest or principal payments This can help to improve the firms financial pos... View the full answer