Floatation Costs associated with stock issue
The floatation costs associated with stock issue comprises of two cost:
i)Underwriting spread: This refers to difference between the gross and net proceeds from a given security issue. This is generally expressed as percentage of the gross proceeds.
ii) Issuing Costs: This costs includes various fees associated with stock issue such as Legal Fee, Accounting Fee, etc.
Comparing Floatation Cost of Stock issue with Bond issue
Floatation cost associated with stock issue is higher than that for bonds.
Preference Stock: Goldman Sachs Inc.
Referring to the financial statements of Goldman Sachs Inc, we found that the company has preferred stock worth $720 Million. As for the performance of preference stock, over the years, the value of preference stock has been increasing. For Instance, during 2011, the value of preference stock of the company was $310 Million, that further increased to $620 Million during 2012 and then, $720 Million during 2013.
Advantages of issuing Preference Stock
a)No interference
Unlike common equity-holders, preference shareholders do not have any voting rights in the company, hence, it allows the company to raise more capital without additional dilution of the ownership.
b) Trading on equity
Since the rate of dividend is fixed for preference shareholders, at the times of increased earnings the company can provide their equity holders with the benefits of trading on equity.
Disadvantages of issuing Preference Stock
a)Fixed Obligation
Although fixed payment obligation is also an advantage for the company to include preference stock, however during hard financial times, this turns out to be burden for the company. In other words, since dividend payment on preference shares is fixed and obligatory, the company has to pay them dividends. The burden effect is magnified for cumulative preference shares on which outstanding dividend payments gets accumulated and is to paid in the future.
Shape of US Treasury Yield Curve
Works Cited
Kent Baker, G. P. (2011). Raising Funds and Cost of Capital. In G. P. Kent Baker, Understanding Financial Management: A Practical Guide (pp. 341-342).
The Yield Curve and Predicted GDP Growth, September 2014. (2014, October 2). Retrieved October 29, 2014, from http://www.clevelandfed.org/research/data/yield_curve/
