M3 Discussion Essay Example | Topics and Well Written Essays - 500 words

M3 Discussion - Essay Example Common stocks are the most popular investment instrument in the stock market. One of the advantages of common stocks is its liquidity. A second advantage of common stocks is that the payment of dividends is optional (Harris, 2012). A disadvantage of the sale of common stocks is the lost of power due to the fact that common stockholders have voting rights. The high cost of launching an IPO is another con of common stocks. The use of preferred stocks is another long term financing option for the company. Preferred stocks offer the advantage of not diluting the power of the owners due to its lack of voting rights. One of the disadvantages of the use of preferred stocks is that preferred stocks have mandatory dividend payments. A third long term financing option for Genesis is bank loans. A business loan in the United States can be obtained to be financed in ten or more years. The interest rate of a business loan varies depending on the credit score of the business. A con of business loans is that they are a liability that must be paid every month. An increase in liabilities decreases the cash flow of a company. Lenders have cero power or influence over the operating decisions of a company, thus the use of loans does not dilute the power structure of an enterprise. A good thing about bank loans is that they provide companies with large sums of money in exchange for a small monthly payment. A fourth option that Genesis can utilize to obtain financing is the use of corporate bonds. A bond is a debt instruments that pays a coupon interest payment, while the principal is paid once the bond reaches maturity age. Bonds can be very useful debt instruments for companies with cash flow problems because the bond deb tor does not have the obligation of paying the principal payment until the end of the bond contract. The relative risk affects the cost of capital of a company due to the