Introduction To Debt Policy

Introduction to Debt Policy When a firm grows, it needs crown, and that capital peck come from debt or equity. Debt has two important advantages. First, matter to paid on Debt is tax deductible to the corporation. This effectively reduces the debts effective equal. Second, debt holders get a fixed return so breedholders do not scram to share their profits if the dividing line is extremely successful. Debt has disadvantages as well, the higher the debt ratio, the riskier the company, hence higher the cost of debt as well as equity.

If the company suffers financial hardships and the operate income is not sufficient to cover interest charges, its stockholders will have to make up for the shortfall and if they cannot, bankruptcy will result. Debt can be an obstacle that blocks a company from seeing ruin times even if they are a couple of canton away. Capital structure policy is a trade-off amidst risk and return: · Using debt raises the risk borne by stock holders · U...If you want to get a full essay, order it on our website: Ordercustompaper.com

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