You are in a discussion with your financial and operations managers and are considering a new debt instrument (issuing a bond) to raise money for a major upgrade of your plant and equipment to improve your productivity and energy efficiency. While the financial managers understand the general options on the various types of bonds, your operations managers are not so familiar with the terms, and you need to explain.

A) What are the main considerations in raising new funds with debt? Explain the considerations and their advantages.

B) What are the main considerations in raising new funds with equity? Explain the considerations and their advantages.

C) What sources are open to the firm to raise funds internally?

D) Given the discussion in your text reading on the Modigliani-Miller (MM) Proposition 1, what effects on the value of the firm would you expect if you raised new funds with debt? Explain.