Common and Preferred Stock

Another option is the issuing of preferred stock, the company’s common stock is already overvalued in the market; therefore, sourcing additional capital through common stock might result to lower proceeds.

Thibodeaux, W. (2017, April 19). Advantages & Disadvantages to Issuing Bonds in Order to Raise Capital. Retrieved from Pocket Sense: https://pocketsense.com/advantages-disadvantages-issuing-bonds-order-raise-capital-3899.html

So what does this really mean? It means if a company puts their stock up for sale on the market you can buy a partial ownership of the company. Your portion of ownership depends on the amount of shares you purchase in a particular company. When you purchase a share of the company you own that percentage of everything the company owns and makes and can have a decision on the company. The two most common types of stock are common, the typical traded stock that everyone is use to and comes with voting rights, and preferred, doesn't usually come with voting rights and typically offers some form of guaranteed fixed dividend forever. Features of stocks are easy to buy and sell, no guarantee of return, may make huge profits fast or lose value just as quick, requires monitoring. Stocks are traded on "The Market", meaning they have to be bought and sold through a stock market. With regulations just anyone can't buy or sell on the market, it has to be a licensed broker to carry out the transaction. Stock buying and selling can take a lot of time and research to make the most profit. If you can find a broker, you trust they can really help you with your investment. Stocks are one area of investment, more so than bonds, you need to be sure you can stand to lose the money if the market doesn't work

Preferred dividends are generally fixed they can be valued as a constant growth rate of zero. You use the zero growth models for the preferred stock and the assumption that the dividends always stay the same and you use the constant growth model for common stock because the dividend grows by a specific percent a year.

Most of the time the price of the preferred dividends is higher than the common stock because there is more risk for investors but there is also more payoff if it does well.

The type of preferred stock that may be exchanged at the stockholder's option for common stock is:

The single most important problem faced by the company is: the classification of preferred stock.

Because dividends on preferred stock, unlike interest on debt, are paid out of after-tax income.

When you buy stock you are purchasing a part of a corporation. The ownership of the corporation is divided into shares of common

The term loan and debentures include interest which can be deducted before reaching taxable income while the preferred shares pay out dividends after taxable income. Therefore, from a tax perspective, the term loan and debenture options are preferred.

Being a stockholder can have great rewards like a viable source of income, or an eggs nest for retirement, however it does have its downsides as well. Owning stock in a corporation bears the risk of losing all one’s investment if the company goes bankrupt. Aside from financial benefits, owning stock allows stockholders to have a voice (however small it may be) in the company’s direction.

There are two main characteristics of the Series B Preferred Stock that behave like equity- the voting rights and conversion option. The host contract gives voting rights- which behave like equity. While voting rights fall into the equity category, these are not full voting rights. The voting rights allow the Series B preferred stockholders to vote with common stockholders only for significant events. These voting rights are therefore not full voting rights which means this characteristic is not given its full weight as being toward equity. The conversion option shows signs of equity; however, it also shows signs of debt. Since the conversion option is weighted equally for equity and debt, it essentially cancels itself in determining whether the host contract is debt or equity.

Stocks (or shares), by definition, are shares of ownership in a company. By purchasing stocks in a company, the investor becomes a part owner, and thereby owns a percentage share of the company’s after tax profits. Stocks/shares have two key characteristics: 1) they can be issued in small denominations: an investor can purchase as many or as few shares in a company as he/ she wants, thereby becoming a

A dividend is a usually distributed in cash form to stock holders of a corporation approved by the board of director. It may also include stock dividend or other forms of payment. A stock dividend represents a distribution of additional shares to common stockholders. Dividends are only cash payments regularly made by corporations to their stockholders.

Also, the stock market tends to react negatively to announcements of new common stock offerings, whereas debt security announcement tend to have little impact on stock prices. As a additional external financing is needed, the firm will work down the pecking order – from safe to more risky debt, then possibly to convertible debt, and finally to common equity as a last resort.