Xentec Inc. has decided to expand its operations to owning and operating golf courses. The following is an excerpt from a conversation between the chief executive officer, Peter Kilgallon, and the vice president of finance, Dan Baron:Peter: Dan, have you given any thought to how we’re going to manage the acquisition of Sweeping Bluff Golf Course?Dan: Well, the two basic options, as I see it, are to issue either preferred stock or bonds. The equity market is a little depressed right now. The rumor is that the Federal Reserve Bank’s going to increase the interest rates either this month or next.Peter: Yes. I’ve heard the rumor. The problem is that we can’t wait around to see what’s going to happen. We’ll have to move on this next week if we want any chance to complete the acquisition of Sweeping Bluff Golf Course.Dan: Well, the bond market is strong right now. Maybe we should issue debt this time around.Peter: That’s what I would have guessed as well. Sweeping Bluff Golf Course’s financial statements look pretty good, except for the volatility of its income and cash flows. But that’s characteristic of the industry.Discuss the advantages and disadvantages of issuing preferred stock versus bonds.
Functions of the Federal Reserve System
The Federal Reserve System looks after the financial activities and operations of the banking system. It is the apex body that has complete control over the banking regulations. All the guidelines regarding the banking system, money supply, and formulation of the monetary policy come under the purview of the Federal Reserve System. The New York Fed also helps in drafting the monetary policy and supervising the financial system.
Elastic and Inelastic Markets
Measuring the change in percentage of an economic variable with respect to change in a different economic variable is known as elasticity. This change in percentage results in a change in price concerning changes in other factors. In simple terms, when one factor brings a change to another factor, it is called elasticity.
Xentec Inc. has decided to expand its operations to owning and operating golf courses. The following is an excerpt from a conversation between the chief executive officer, Peter Kilgallon, and the vice president of finance, Dan Baron:
Peter: Dan, have you given any thought to how we’re going to manage the acquisition of Sweeping Bluff Golf Course?
Dan: Well, the two basic options, as I see it, are to issue either
Peter: Yes. I’ve heard the rumor. The problem is that we can’t wait around to see what’s going to happen. We’ll have to move on this next week if we want any chance to complete the acquisition of Sweeping Bluff Golf Course.
Dan: Well, the bond market is strong right now. Maybe we should issue debt this time around.
Peter: That’s what I would have guessed as well. Sweeping Bluff Golf Course’s financial statements look pretty good, except for the volatility of its income and cash flows. But that’s characteristic of the industry.
Discuss the advantages and disadvantages of issuing preferred stock versus bonds.
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