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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.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 14, Problem 5CP
Textbook Problem
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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.

Chapter 14, Problem 5CP, Xentec Inc. has decided to expand its operations to owning and operating golf courses. The following Discuss the advantages and disadvantages of issuing preferred stock versus bonds.

To determine

 Discuss the advantages and disadvantages of issuing preferred stock versus bonds.

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.

Discuss the advantages and disadvantages of issuing preferred stock versus bonds.

The main advantage of issuing preferred stock is that unlike bonds, the company does not have the liability of paying interest on bonds. The company does not have obligation of paying dividends to its preferred stockholders...

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Chapter 14 Solutions

Financial Accounting
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