Unit 8: debt capital structure and borrowing costs – discussion two

Presentation to the Board of Directors, The Pros and Con of Debt Financing

The calculation of after-tax cost of debt plays a role in managing capital costs. You have been asked to present a few matters related to Debt (Bond) financing to the Board of Directors.

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  • Please briefly explain to the Board 1) the usual collateral position of Bondholders (Lenders) versus Equity investors, 2) why common stockholders can demand a higher rate of return than lenders, and 3) why you would suggest debt (or equity) financing.

200 words with reference

 

Explain what the weighted average cost of capital for a firm is and why it is often used as a discount rate to evaluate projects.

 

200 words with reference

 

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