ACC 100 Chapter 11: Chapter 11

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rosedeer364

28 Sep 2011

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Equity as a source of financing: when company needs to raise money, it must choose from the alternative financing sources that are available, financing divides into 2 general categories. Debt borrowing from banks or other creditors. Issuing shares is a popular method of financing because. Provides advantages for the issuing company and the investors (shareholders) But also higher degree of risk: shares are popular with issuing companies because. Dividends on them can be adjusted according to the company"s profitability. Higher dividends can be paid when the firm is profitable and lower dividends when it is not: several disadvantages of issuing shares. Shares have voting rights and issuing shares allows new investors to vote so existing investors may not want to share the control of the company with new shareholders. From issuing companies opinion, there is tax disadvantage to shares versus debt. Dividends on shares are not tax deductible and do not result in tax savings to the issuing company.

Related Questions

Do you agree or disagree with the following post belowfrom a classmate? Please exaplain with cited sources in the bodytexts and reference. Thank you!

Issuing common stock helps a corporation raise money. Thatcapital can then be used in a number of ways to help the businessgrow, such as to acquire another company, pay debts or to simplyhave access to more cash for general corporate reasons. Companiesmust decide, however, whether issuing common stock is really worthit. Issuing additional shares into the financial markets dilutesthe holding of existing shareholders and reduce their ownership inthe corporation.

Pros

Issuing common stock in the financial markets is an alternativeto issuing debt. Rather than adding more debt to a company'sbalance sheet, which is a financial statement, and budgeting forthe servicing of debt, a company can take a less expensive routeand issue common stock. With stock, an organization does not needto make obligatory interest payments to investor and instead canmake discretionary dividend payments when it has extra cash.

Cons

By selling additional common shares into the financial markets,a company is increasing the number of outstanding shares. When thenew shares enter the market, they dilute the ownership of existingshareholders, according to " The Global issues blog and FinancialAccounting book 9th ed, Pearson." One of the perks of being acommon shareholder is the right to vote on important companydevelopments. Once a greater number of common stocks are sold inthe market, an existing shareholder's ownership stake and votinginfluence diminish. Companies sometimes avoid issuing more commonstock as a courtesy to existing shareholders.

Reference:

The GlobalIssuesBlog,8 Big Advantages and Disadvantages ofcommon Stocks, retrieved 03 April 2017 fromhttp://connectusfund.org/8-big-advantages-and-disadvantages-of-common-stocks

Harrison, W. T.,Horngren, C. T. & Thomas, C. W. (2013).Financial Accounting (9^th ed.) Upper Saddle River, NJ:Pearson Education, In

Each of the following transactions would be classified as afinancing activity except:

		Cash payments for dividends to shareholders
		Acquiring an investment in the shares of another company
		Repayment of external borrowings
		Repurchasing a company's shares for cash

redelephant484

Following is alist describing various features of the corporate form oforganization. Match each feature with an appropriate descriptiveterm, and note whether this feature is an advantage or disadvantageof the corporate entity.
	*TERM*	*ADVANTAGE ORDISADVANTAGE*
The ability of a company toraise capital by issuing shares to the public	Publicly Traded	Advantage
The ability of an existingshareholder to sell shares without corporate approval
The ability of the governmentto tax corporate earnings and dividends
Periodic regulatoryfilings
The ability of differentindividuals to pool resources
The inability of creditors topursue individual shareholders
The life of the entity canexceed the life of the shareholders

TERMS:
Limited Liability
Double Taxation
Perpetual Existence
Transferability ofOwnership
Mutual Ownership
Cost of Regulation
Publicly Traded

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ACC 100 Chapter 11: Chapter 11

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