Question - Living Smart Inc. has decided to expand its operations to owning and operating long term health care facilities. Read the following conversation between the CEO, Mark and the VP of Finance Jolin:
Mark: Have you given any thought to how we are going to finance the acquisition of St George Health Care?
Jolin: There are two options. We can issue preferred stock or bonds. The equity market is not doing well now. The rumor is that the Federal Reserve Bank may increase the interest rates either this month or next.
Mark: Yes, I heard that. The problem is that we can not wait around to see what is going to happen. We have to move on this next week if we want to do this acquisition.
Jolin: The bond market is strong now. Maybe we should issue debt.
Mark: That is what I thought. St. George's financial statements look good, except for the volatility of its income and cash flows. But that is characteristic of the industry.
Discuss the advantages and disadvantages of issuing preferred stock vs bonds.