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

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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 -
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern