Briefly discuss the possible advantages to Springbank plc of using an issue of ordinary shares to finance the investment.
...h dividends because the company has pay the dividends in the form of bonus share. The shareholders can sell the bonus share in the secondary market when the share price goes up. So, if the company pays their shareholders bonus share as a repayment of dividend, it does not affect the financial statement of the company since there is nothing related to cash terms. Therefore, it is an advantage for Springbank Company to issue an ordinary share to finance the investment. Besides that, another advantage for Springbank Company of issuing ordinary share to finance the investment is that the undeclared dividend will not affect the company become bankruptcy. This is because dividend is declared by the board of directors of a corporation; it is not a liability of the corporation. Furthermore, it is different from the company use debt financing because debt is the liability of the corporation and there is an obligation of paying interest to the bondholders. Moreover, a corporation cannot default on an undeclared dividend and as a consequence the corporations will not become bankruptcy because of nonpayment of dividends. Whether the amount of the dividend is to be paid or not is the decisions of the board of directors. The payment of dividends by the corporation is not a business expenses and dividends are not deductible for corporate tax purposes. Therefore, issuing ordinary share is a better choice. So, Springbank Company can issue ordinary share in order to finance the investment. Lastly, Springbank Company is easily to get bank loans in issuing ordinary share compare to debt financing corporations in financing the investment. It is due to the characteristics of ordinary share as an investment is its residual claim and its limited liability features. The ordinary shareholders are the last group of investors to claim on the assets and income of the corporation. In a liquidation of the firm’s assets, the shareholders have to claim to what is left after paying al...