Question

United alliance inc need s funda to accrue aequipment and company decided to rates the funds through issue bonds and share

Answer 1

For investors willing to take the risk, stocks can pay more than bonds in returns as the company's stock could continue rising. ... Because the stock market is unpredictable, it is very easy to lose money by investing in the wrong stocks. For this reason, stocks are often considered higher risk than

ISSUING BOBD

Issuing bonds is one way for companies to raise money. A bond functions as a loan between an investor and a corporation. The investor agrees to give the corporation a certain amount of money for a specific period of time. In exchange, the investor receives periodic interest payments. When the bond reaches its maturity date, the company repays the investor.

The decision to issue bonds instead of selecting other methods of raising money can be driven by many factors. Comparing the features and benefits of bonds versus other common methods of raising cash provides some insight. It helps to explain why companies often issue bonds when they need to finance corporate activities.

KEY TAKEAWAYS

When companies want to raise capital, they can issue stocks or bonds.

Bond financing is often less expensive than equity and does not entail giving up any control of the company.

A company can obtain debt financing from a bank in the form of a loan, or else issue bonds to investors.

Bonds have several advantages over bank loans and can be structured in many ways with different maturities.

SHARE CAPITAL

One of the attractions of raising capital via the issue of shares is that the company does not have repayment requirements for the initial investment or for interest payments. This can make it more appealing than other forms, such as bank loans and bonds, that are debts of the company. Debts require the company to make payments at regular intervals in relation to interest, as well as eventually repaying the initial amount that was borrowed. Any shares sold can require a distribution of profits as a dividend but these can be halted if necessary. Therefore, the business is given more flexibility over its finances.

Any money raised through the sale of shares can be used by the company however it wants. There are no stipulations or requirements attached to the funds. In comparison a creditor can limit the use of the funds they will lend to the company, which will restrict how the company can use them.

Raising equity via share sales is also very flexible. The business has full control over how many shares to issue, what to initially charge for them and when it wishes to issue them. It can also issue further shares in the future if it wishes to raise more money. The company can also decide on the type of shares it issues and what rights these give the shareholders, and it can also repurchase issued shares if desired.

Another advantage is that there is a much lower risk that the business will become bankrupt. Shareholders cannot force a company into bankruptcy if it fails to make payments (unlike creditors if the company fails to repay interest).

Shareholders want the business to succeed and can bring in skills and experience and assist with business decisions.