Accounting - Corporations

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JumpinJehosaPhats: Part 3 Information

JumpinJehosaPhats 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 (LeapinLizards Inc) issued 10,000 ten year cumulative preferred shares with par = $1000 at 3.4%