Bond-stock financing-deciding how to finance the expansion

Bond-stock financing-deciding how to finance the expansion

Business Economics
Kim owns all 100 shares of common stock in GBZ Co. She has decided that she needs to raise $10,000 in new capital this year. She is trying to decide between two alternatives that are open to her. One is to issue a $10,000 bond, paying 10 percent interest. The other is to create and sell 100 additional shares, at $100 each. Calculate what her own earnings will be next year if ABC’s profits, before interest payments, are 0, $1,000, $2,000, $3,000 or $4,000:

if she chooses bond financing.

if she chooses stock financing.

What should Kim take into account when deciding how to finance the expansion of GBZ Co?

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