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3 years ago

When should a company consider issuing debt instead of equity?

Business

2 answers:

AURORKA [14]3 years ago

7 0

Answer:

There could be many reasons, but probably the company reached its debt ceiling and is not able to borrow anymore (at acceptable conditions), due to low net cash flow relative to debt service, or low available collateral, or both.

Larger expansions or risky undertakings would also be more likely financed by equity - the expansion might require taking on more debt than the company is currently able to service, and the creditors are not sure if it will also bring sufficient additional EBITDA to service large debt. Similar thing with risky business proposals - it is more logical to finance them through equity, where investors share the hard-to-predict benefits as well as potential losses. If they were to be financed by debt, the loan should in theory carry very high interest to make up for the risk profile of the endeavor. Better to make it an equity investment.

Also, issuing equity improves your balance sheet and enables you to take on more debt. Having more equity could also mean cheaper debt (better interest rates). Debt is considered “senior” to equity, in theory losses should hit investors first and creditors later, so having a larger equity cushion means lower credit risk.

If the company suffered some hard times, they are already starved for cash and on top of that creditors would likely want to reduce their exposure - a perfect storm that could put the company out of business due to lack of liquidity, even when the business model is good in the long term (but who has a crystal ball, eh?). Raising more equity may be their only option.

Aloiza [94]3 years ago

5 0

Answer:

Many fast-growing companies would prefer to use debt to support their growth, rather than equity, because it is, arguably, a less expensive form of financing (i.e., the rate of growth of the business's equity value is greater than the debt's borrowing cost).

Explanation:

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attashe74 [19]

Answer:

$76.670

Explanation:

Manufacturing overhead is the category where all the direct and not-direct cost and expenses are incurred when a product is manufactured. Manufacturing overhead includes depreciation of manufacturing equipment, factory repair and maintenance, the direct and indirect cost of labor, and direct and indirect material used. Other expenses and costs not directly related to the manufacture of products must not be included. Expenses and costs not included (within this question): sales of sales and president salaries, advertising and office rent (if it is not explicitly broke down between factory and office spaces).

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3 years ago

Veronique and lily each bought a piece of luggage that had the same price in different stores. the table below shows how they wi

myrzilka [38]

According to the information in the Graph Veronique made a better decision than Lily because the final cost of her purchase is lower including finance charges (option B)

<h3>What is a finance charge?</h3>

A finance charge is an economic term that refers to additional charges made by finance companies (such as banks) to a transaction we make, such as a purchase.

In the case of Veronique and Lilly, they both bought the same suitcase with different prices. However, the better financial decision was Veronique's because she paid less ($25) for the same bag including finance charges.

While Lilly, despite having fewer fees, will have to pay $10 more than Veronique.

Note: This question is incomplete because the image is missing. Here is the image.

Learn more about payment in: brainly.com/question/15138283

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2 years ago

People generally file for bankruptcy because they:

valentina_108 [34]

The correct answer is A) Have more debt than they can pay because there are laws, generally by the state, that limit when people can file for bankruptcy. You are not allowed to file for bankruptcy unless you are unable to afford your debts. Choices B, C, and D, along with being illegal, are also unethical, especially in terms of business.

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4 years ago

Which of the following entries correctly reflects the entry for recording the wages of all factory workers?

Ad libitum [116K]

Answer; b. Work in Process Inventory Manufacturing Overhead Wages Payable

Explanation;

Factor workers are considered to be directly related to the production of the good. As a result, the wages paid to them are added to the inventories produced to show that they are part of the cost of the goods produced. Their wages will therefore be debited to Work in Process Inventory.

The wages will then be credited to the Manufacturing Overhead Wages Payable as this is the liability account that deals with wages owed to people working in the factory.

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3 years ago

A change in the money supply will change investment when a. the money supply is a function of the price level. b. investment dep

Paha777 [63]

Answer:

C) investment is interest-sensitive.

Explanation:

Investment is a function of the real interest rate. In Economics, this is expressed as:

I(r)

Where:

I = Investment

r = Real interest rate (which is equal to nominal interest rate minus expected inflation).

The higher the interest rate, the less is the quantity of investment, and the lower the interest rate, the more investment in an economy.

A change in the money supply affects interest rates. This is essentially the reason why the Fed exists in first place: to target a specific interest rate by increasing or decreasing the money supply.

If the Fed wants to raise the interest rate, it reduces the money supply, and if it wants to lower the interest rate, it increases the money supply.

7 0

3 years ago