The following presentation I would recommend to the board of directors would be as follows:
* What factors would cause our corporate management to obtain cash by issuing bonds, instead of selling stock?
• The company’s common stock equity is undervalued by the market, which means obtaining cash by issuing equity is not good
• The effective rate of the bond issuance is much less than its coupon which means that the company raises more cash as the market puts a premium on the bond
* In what situations would management be wise to issue additional common stock, rather than bonds, to meet long-term capital needs?
• When management believes that the company’s common stock is overvalued by the market, then that is the good time to issue additional common stock
• When demand for debt securities is so low that issues are being sold at steep discounts.
* Should we issue common or preferred stock, as the preferred method of raising cash through equity financing?
Whether the company has to issue common or preferred stocks, the decision will be based on current market prices of these equities (that is, the equity which is more overvalued would be issued).
* What factors should we consider if we decide to issue a debt instrument to raise cash?
• Effective interest rates
• Coupon rate
• Size of issue
* Should we obtain additional equipment through the purchase or lease of said equipment?
• This decision would have to be based on the expected cash of the company. If the company has sufficient cash flow now, then purchase might be a good option if the effective rate is equal or less than the cost of borrowing for the company. Otherwise, the company has to consider leasing.