DB - 4 Issuing Bonds vs Preferred Stock 11 AutoShine, Inc. who currently supplies Car Wash Products has decided to expand its operations to owning and operating car washes. The following is an excerpt from the conversation between the chief executive officer of AutoShine, Larry VanWinkle, and the vice president of finance of AutoShine, John Clancy: Larry to John: John, have you given any thought to how we're going to manage the acquisition of Wash and Shine Car Wash? John: Well, the two basic options, as I see it, are to issue either preferred stock or bonds. The equity market is a little depressed right now and I have heard through the rummer mill, that the Federal Reserve Bank's going to increase the interest rates either this month or next. Larry: Yes. I've heard that rumor. The problem is that we can't wait around to see what's going to happen. We'll have to move on this quickly if we want any chance to complete the acquisition of Wash and Shine Car Wash. John: Well, the bond market is really strong right now. Maybe we should issue debt this time around. Larry: My thoughts exactly! Wash and Shine has a strong balance sheet, however it's cash flows and income are a little volatile. But that's characteristic of the car wash industry. REQUIRED: Discuss the advantages and disadvantages of AutoShine issuing preferred stock versus bonds to complete their acquisition of Wash and Shine Car Wash. Remember that AutoShine (the Company) issuing the bonds or the preferred stock, be sure to discuss this from the Company's point of view not the investor's point of view. a. You must have a source posted, as a basis for your discussion, within your reply (Make certain you cite the source after your answer). You may use the book as your reference, but DO NOT copy information word-for-word. You also have the option to use another source. Note: Don't forget to post your source!!!!! (2 points) Note if you do not have a source posted you do not get points for (a) b. There must be at least two advantages and two disadvantages listed for each type of security (both bonds and preferred stock) as it relates to the issuer (Auto Shine as the issuer). You should provide supporting information in your discussion. The discussion must be from the issuer's point of view, Autoshine, the company who is issuing the bonds or the preferred stock, not the lender/investor. (2 points) c. Your comments should at least be a paragraph and well thought out. (1 point)