Discuss the distinction between a corporation by Dr. Robert Murphy

Question 94 / 96: Discuss the distinction between a corporation raising new funds by issuing debt versus stock.

Answer:

When a corporation issues debt, its leverage increases and it

is more vulnerable if its assets lose value. The upside is that if

the corporation does well, it only owes the bondholders a fixed

amount of interest payments. When a corporation issues stock,

outsiders now share in the profits or losses, which cushions the

blow but also reduces the potential gains to the original owners.

Sample Partial Credit Answer

Issuing debt is riskier.

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https://www.jobilize.com/capitalism-the-market-economy-by-dr-robert-murphy-mises

Capitalism: The Market Economy

Access: Public Peer Review

Dr.Robert MurphyAssociated Scholar

Mises Institute

USA

Attribution: Dr. Robert P. Murphy, Lessons for the Young Economist. (Mises Institute), http://mises.org/document/6215/Lessons-for-the-Young-Economist (Accessed 04 April, 2014). License: Creative Commons BY

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