Preferred versus Common Stock Rohnan Inc. needs to raise $500,000. It is considering two options:

a. Issue preferred stock, $100 par, 8%, cumulative, nonparticipating, callable at $110.

The stock could be issued at par.

b. Issue common stock, $1 par, market $10. Currently, the company has 400,000 shares outstanding distributed equally in the hands of fi ve owners. The company has never paid a dividend.

Required Rohnan has asked you to consider both options and make a recommendation. It is equally concerned with cash fl ow and company control. Write your recommendations.

Ethical Decision Making AppendixLO1