Question

Chester currently has $14,000,000 in cash and management has decided to issue stocks and bonds worth an additional $8,000,000. There are 2,566,559 shares outstanding. Assuming that cash from operations will be the same for each of the following activities, which activity exposes this company to the most risk of being issued an emergency loan?

Answer 1

Answer:

Retiring the oldest bond

Explanation:

Firms issue bonds to raise the funds. Firm has to pay dividend on those bonds and the ability of firm to pay dividend reflect the financial position of the firm. Thus, retiring the oldest bond in exposes company to the most risk of being issued an emergency loan