Financial Instruments & Markets Essay Example | Topics and Well Written Essays - 1250 words

Financial Instruments & Markets - Essay Example The existing stockholders are amenable to fund this amount. This can be done by issuing additional shares, and exercising the rights issue, wherein existing stockholders have the first prerogative to subscription rights; this means they are invited to subscribe cash for new shares in proportion to its existing shares. Rights issue simply means, for example: a one-in-four rights, is offering stockholders one share for every four shares they currently hold. Issuing additional shares of stocks to fund all the requirements is not advisable because of the difficulty with having too many stockholders. Too many stockholders make the complexity of direction and managing the governing board too difficult. It would be hard to make simple decisions because new stockholders may like to have their own positions in the company as there is also politics in directorship, thus the management lose a certain portion of its power. (Business Link) The beauty of equity financing as against bond and debentures is that it is devoted to the business or projects and company only pay investors if the business is doing well. It does not require monthly or periodic payments to investors, only periodic interests thru dividends. The company will not have to be burdened of servicing bank debts or debt finance for allowing use of their funds. The disadvantages seen in equity financing is this method is time consuming, demanding, and costly, and may take away the manager’s time away from the company; and the process will require the company to divulge to potential investors the company’s secrets such as background, programs, and forecasts (Barclay, Britt, 27 October 2011), 3. Installation of equipment in the amount of $150 million. This requires a long term financing, and since it fall s above the equity shares to be issued by the company, issuance of debentures is