The article will highlight MBA6302calculation of WACC and why companies prefer issuing bonds over stocks. Mainly, companies run their operations using the capital they raise via different sources, such as listing their shares. Also, the companies may issue interest-paying bonds or make commercial loans to raise money. WACC is the average after-tax cost of a company’s various capital sources, such as common stock and long-term debt. Notably, WACC gets calculated by multiplying the cost of each capital source by its relevant weight. Furthermore, the products get added together to determine the value. Investors require an understanding of the calculation of WACC and why issuing bonds over stocks is favorable.

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COMPANY INVESTORS AND ISSUING BONDS OVER STOCKS

Many investors prefer issuing bonds over stocks as bonds are a relatively safe investment. Mainly, this is because bonds return a fixed interest for the life of the bond. When bankruptcy occurs, bondholders are first to receive their money back, thus proving a favorable option. Notably, stock investing is unfavorable as the value of stocks can go up or down. Therefore, stock investors are the last group to get compensated upon bankruptcy. Bond investors lend their money and are not part owners of a company, unlike the stock investors. Understanding MBA6302calculation of WACC and the benefits of issuing bonds over stocks is essential to investors.

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ECONOMIC EXPOSURE OF ISSUING BONDS OVER STOCKS

The increased globalization and changes in exchange rates affect a company’s profitability and lead to various economic exposure. Primarily, there are three types of risk caused by currency volatility: transaction, translation, and financial exposure. Many multinationals and small companies face exchange rate volatility as a result of exchange rate risk. Importantly, investors need to understand and manage exchange rate risk as this can affect their holdings and profitability. Economic exposure involves unexpected changes in exchange rates as a company might base their budget on certain assumptions. The article will discuss MBA6302calculation of WACC, exchange rate risks, and why companies favor issuing bonds over stocks.

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