Managerial Economics 2nd Edition by William Boyes

Exercise 4

The Benly Company needs to raise funds for a major expansion. The company is debating whether to issue stock or to issue bonds. If the company issues bonds, then its debts will increase and it will be under additional stress to ensure that its revenues can cover the costs of its debt. If it issues stock, the current owners will lose power and influence. What should the company do? Explain your answer.