The Farr-Phig-Newton Corporation needs to raise $100,000,000 to acquire another company and is considering the following options effective January 1, 2018:

a. Issue 30-year debenture bonds. It is estimated that the interest rate will be about 10% per year. To achieve this interest rate the bonds will have a convertible feature that can be exercised into shares of common stock at the rate of 20 shares for each $1,000 starting in 2038. Currently the common stock of the company is selling for about $25 per share and its price earnings ratio is about 10 times.

b. Issue 4,000,000 shares of common stock. Currently Farr-Phig-Newton has 40,000,000 shares of common stock issued and outstanding. The common stock has a $0.50 par value and for the last several years has been paying a dividend of $1.00 per share.

c. Issue 200,000 shares of 9% $100 par cumulative preferred stock (which can be sold at par) and borrow $80,000,000 from the bank with a serial note payable at 11% interest. The note would mature in $20,000,000 amounts in 15 years, 20 years, 25 years and finally in 30 years.

Required: Discuss the advantages and disadvantages of each alternative. What is your recommendation?