Chapter 10 bonds - Chapter 10 Long-Term Liabilities Bond...

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Chapter 10 Long-Term Liabilities Bond Financing - Bond is its issuers’s written promise to pay an amount identified as the par value of the bond with interest. The par value of a bond aka face amount or face value is paid at a specified future date known as the bonds maturity date - Advantages of bonds Bonds do not affect owner control Equity financing reflects ownership in a company whereas bond financing does not Interest on Bonds is tax deductible Bond interest payments are tax deductible for the issuer, but equity payments (distributions) to owners are not. Bonds can increase return on equity A company that earns a higher return with borrowed funds than it pays in interest on those funds increases its return on equity. o This is called financial leverage aka trading on the equity GENERAL RULE: Return on equity increases when the expected rate of return from the new assets is higher than the rate of interest expense on the debt financing - Disadvant ag es of Bonds
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This note was uploaded on 05/17/2010 for the course BIO 111 taught by Professor Osikanlu during the Spring '09 term at Moraine Valley Community College.

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Chapter 10 bonds - Chapter 10 Long-Term Liabilities Bond...

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