The financial manager can use these securities which

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Unformatted text preview: ities to improve its fund-raising activities. The financial manager can use these securities, which possess characteristics of both debt and equity, to raise funds more inexpensively or to provide for desired future changes in the firm’s capital structure. Leasing, particularly financial (capital) leases, may enable the firm to use the lease as a substitute for the debt-financed purchase of a given asset. Because of differing tax brackets of lessors and lessees, different tax treatments of leases and purchases, and different risks and borrowing costs for lessor and lessee, leasing may provide more attractive risk–return tradeoffs to the firm than would result from using debt financing to purchase a given asset. Similarly, by issuing convertible rather than straight debt or by attaching stock purchase warrants to a bond issue or debt financing, the firm may provide lenders with the potential to benefit from stock price movements in exchange for being charged a lower interest rate or including less r...
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This document was uploaded on 01/19/2014.

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