Debtvs equity without PS-S07_1_

Debtvs equity without PS-S07_1_ - LONG-TERM FINANCING...

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LONG-TERM FINANCING Capital or Long-term Liability advantages of raising capital capital stock is not paid back by the entity dividends are distributed only if the entity has enough income and cash advantages of long-term liabilities : Shareholder Control Tax Effects: Interest payments on liabilities are tax deductible Financial leverage: Financial leverage or trading on equity means using borrowed money to increase the rate of return to the shareholders Raising Capital through Debt vs. Equity - Interest payments are obligatory ≠ dividend payments - Debt matures ≠ equity - Interest expense is tax deductible ≠ dividends - Debt securities have lower risk for investors - If debt financing, voting privileges of shareholders are not lost, no dilution of shareholder’s rights - Debt may be the only available funds. - Claims of creditors have legal priority over claims of owners
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Rights of Stockholders 1. Right to share in profits 2. Right to vote for important matters
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This note was uploaded on 03/16/2012 for the course FENS 101 taught by Professor Selçukerdem during the Fall '12 term at Sabancı University.

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Debtvs equity without PS-S07_1_ - LONG-TERM FINANCING...

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