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Because the firm don't have to pay an interest when obtaining it.debt isn't the cheapest source of finance on the contrarily interest must be paid on debt.The cheapest source of finance is retained earnings,this earnings can be converted into permanent share capital by issuing bonus shares t existing shareholders free of any cash contibutions
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What is term for The strategy of investors who are attempting a leveraged buyout is touse debt to finance the purchase of buyout the firm's stockholders and gain control of the firm themselves?
The strategy of investors who are attempting a leveraged buyout is:
What is a firm's capital structure?
Capital structure is basically how the firm chooses to finance its asset, or is the composition of its liabilities. A large way of measuring capital structure is a firms debt to equity ratio - the higher this ratio is, the more leveraged (the more indebted) the firm is.
Why is the coupon rate a bad estimate of a firm's cost of debt?
A coupon rate is not a good estimate of a firm's cost of debt, as it is only a reflection of the firm's cost of debt when bonds were issued, not the current cost of debt. It's not representative of the yield in the current market.
Are Flexibility issues are those which impact the debt capacity that a firm should maintain?
The debt capacity that a firm can maintain is based on expected profits from products and services. Flexibility issues determine the capacity of debt that a firm can maintain.
What is debt-trap?
Debt Trap is a situation where you add on a new debt in order to pay an existing debt. Generally, when the firm or an individual is over leveraged all the credit sources are exhausted, the firm or individual arrives at a situation of debt trap.
What is the cheapest and most important source of equity capital in a firm?
5. , the cheapest source of capital is debt. Whereas the most expensive source of capital is common stock. Because common stock holders do share the actual profit earned from the operation of a business. But when it comes to bonds, they are simply stated in terms of interest. Besides the ownership interest in common stock will make it more expensive while vice versa is for debt.
How compute cost of debt for WACC of a 5y project for company that has NO access to long-term debt markets?
1. If company has no access to long term debt as a source of capital then weighted average cost of capital will only include the rate of equity as a WACC for discounting long term projects as firm has not a mix of debt and equity to finance its investment projects
What is term for The strategy of investors who are attempting a leveraged buyout is touse debt to finance the purchase of buyout the firm's stockholders and gain control of the firm themselves?
The strategy of investors who are attempting a leveraged buyout is:
What is levered firm?
A firm that has no debt.
What is a firm's capital structure?
Capital structure is basically how the firm chooses to finance its asset, or is the composition of its liabilities. A large way of measuring capital structure is a firms debt to equity ratio - the higher this ratio is, the more leveraged (the more indebted) the firm is.
What are the types of internal finance to a firm?
Internal finance is money which is used to help the firm but the the money comes from within the business for example: A internal finance to a firm is last year's profit.
What is debt trap?
Debt Trap is a situation where you add on a new debt in order to pay an existing debt. Generally, when the firm in overlevereged all the credit sources are exhausted, firm arrives at a situation of debt trap.
Why is the coupon rate a bad estimate of a firm's cost of debt?
A coupon rate is not a good estimate of a firm's cost of debt, as it is only a reflection of the firm's cost of debt when bonds were issued, not the current cost of debt. It's not representative of the yield in the current market.
Are Flexibility issues are those which impact the debt capacity that a firm should maintain?
The debt capacity that a firm can maintain is based on expected profits from products and services. Flexibility issues determine the capacity of debt that a firm can maintain.
what is the goodwill in finance?
the name of the firm is goodwill
What is debt-trap?
Debt Trap is a situation where you add on a new debt in order to pay an existing debt. Generally, when the firm or an individual is over leveraged all the credit sources are exhausted, the firm or individual arrives at a situation of debt trap.
The size and the importance of the finance function in a business firm depends primarily on what?
size of the firm
