Advantages of raising monies via a bond issue versus loan

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Question: Merkel, Inc are considering Issuing $10,000,000 of 10-year bonds with a coupon rate of 4%, interest payablesemiannually. Although the current market rate is 4%, based on current economic forecasts, Zeller and Merkel reconize that market rates might increase to 6% by the time they issue the bonds. Althogh they do not like the option of added debt, they feel it is a reasonable alternative and should be considered. Howerever, they are not clear on the implication that this bond issue would have on the company and its financial statements, including the impact of the possibility that interest rates might increase by the time the bonds could be actually issued. Zeller and Merkel are also considering that they can outright borrow the $10,000,000 from a bank, with an interest rate of 4% or 6%, but again are unclear as to the impact of the financial statements. In addition to describing the impact, they would also like a comparison of the advantages and disadvantages of raising the monies via a bond issue versus a loan.

Reference no: EM131997315

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