Intermediate Accounting II - 2IP

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You are a consultant for energy company. It is a utility company. It is thinking about expanding its energy production by opening up a new plant. The owners are at looking at different options and have hired you to prepare a presentation for them with information on each of the following options for raising capital for this project:

  • Issuing shares is one way of raising funds for capital expansion. Discuss the advantages and disadvantages of issuing common shares to raise funds for capital expansion.
  • Issuing bonds is another way of raising funds for capital expansion. Discuss the advantages and disadvantages of issuing bonds to raise funds for capital expansion.
  • What is the financial statement impact of issuing stock compared to issuing bonds? Explain how stock and bonds impact the calculation of debt-to-equity ratio.
  • If they issue preferred stock instead of common stock, what is the impact on financial statements?
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