Accounting/C/S issuance question

variant

I'm working on a mini-project for my class, in one of the cases the company is holding on to a bit of treasury stock, the company needs more capital and hence is deciding to issue more common stock or borrow, i'm confused as to why the company doesn't just re-issue the treasury stock instead of issuing new c/s? Nothing about stock prices is really mentioned...:|

Spherick

Its possible that there are different classes of stock and Company is holding onto voting stock or whatnot to keep more control.

variant

I don't think treasury stock can ever have voting power. Once it's re-issued it can though, i think.
Wish I knew a finance major right now....

Spherick

Treasury stock can have voting rights. They are just not active.

Imagine the Company has 10 shares of Common Stock A and 10 shares of Common Stock B

A has voting rights
B does not

If the Company wants to maintain control, they can repurchase A (and hold it as Treasury stock) and only issue B for the capital.

So its really an issue of preventing others from voting than giving yourself more votes.

However, I don't deal with a lot of equity problems as I mostly audit private companies that don't have treasury stock.

variant

I guess that would be the ideal scenario to do that then.

Now the problem is...this new C/S they're issuing does have voting power, and so did the treasury. And it wants me to discuss the pros and cons...I can't even figure out WHY they're doing it

starmanbrand

Beware, I may be saying something totally stupid in the spoiler and I may look like a douche. But I haven't taken an accounting class in quite a few semesters.

So, where in the question is it telling you to factor in the t-stock? The OP says they need to raise capital by borrowing from a lender or putting out some more common, right? They could be saving the t-stocks for use in benefits or debt coverage or something so it may not be an option to just issue that instead of something else.

DJ-99

variant wrote: »

I guess that would be the ideal scenario to do that then.

Now the problem is...this new C/S they're issuing does have voting power, and so did the treasury. And it wants me to discuss the pros and cons...I can't even figure out WHY they're doing it

The only reason I can think of why you'd want to issue new common stock, instead of re-issuing the old treasury stock, is because you want the new common stock to have something different about it than the treasury stock, i.e. a different par value...

I didn't notice if you said the treasury stock was initially issued as common stock. If it was issued as preferred stock, then this question becomes a lot easier.

This is an interesting question, but I really have no idea what the answer is...good luck.