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Week Three - the business cycle has turned down They should...

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According to our book, the advantages of financing with stock are it creates no liability or interest expense so it is less risky to the issuing company. Financing with bonds, under normal conditions, results in higher earnings per share. So, it seems there is no legal issue with saddling a company with a high level of debt, however, just because a practice isn’t illegal doesn’t mean it’s not unethical. Ethical practices do not only address what is right or wrong according to the letter of the law. Ethics deals with what is morally right and what is morally wrong. I feel it is unethical for a company to continuously borrow to the point of being on the brink of bankruptcy. The fact that Bombadier is profitable “often” means it could sustain itself during periods when
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Unformatted text preview: the business cycle has turned down. They should make a concentrated effort to tighten their belts during these slow periods and just wait them out, with the knowledge that they will be profitable again, instead of borrowing heavily risking “other people’s money” to get through. When a company files for bankruptcy protection, the investors usually have little recourse to recoup their losses. However, most investors understand and accept the risks associated with investing, so they don’t invest what they cannot afford to lose. The employees, on the other hand, who are working for a living because they do not have the excess funds sitting around waiting to be invested; they lose their jobs if the company goes under, and have nothing....
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