unit 8 discussion finance

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.

• 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.