When a company should raise money by selling bonds instead of new shares?

Question

When a company should raise money by selling bonds instead of new shares?

Answer 1

When a company issues bonds, the ownership of the company does not change. When it issues stocks, then that dilutes the equity in the company. It is two different operations and purposes.

Answer 2

Generally the higher the tax rate of a company the more debt becomes attractive.  Because the interest is tax deductible.  The optimum debt to equity combination would be the amount that minimizes the cost of capital for the company.

Answer 3

Never.

Answer 4

In addition to what Rabbit said, a bond is a loan and gets paid interest and is paid off before stockholders if the company goes bankrupt.  If they issue more stock, the value of each share goes down and the shareholders get upset.  On the other hand, the additional debt affects the financial status of the company.  In either case, the company must deliver by increasing revenue and income to prove the action was worth it.