QUESTION 1

1. Fueltech Company, a biotech research and development firm started ten years ago, has had operating losses since its origin. Today, the firm has a number of products in the development pipeline that management believes have prospects for commercial application at some unknown time in the future. The firm has no long-term debt. When it was started, management decided to finance operations with common stock sales to the founders and a small group of private investors.

As an outside consultant, would you advise management to raise financing now through the sale of long-term bonds? Explain your answer so that management, whose expertise is in science and not finance, can easily understand it.