The use of warrants lowers the coupon rate on the corresponding debt issue. Doesthis mean that the component cost of a debt-plus-warrants package is less than thecost of straight debt? Explain.
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The use of warrants lowers the coupon rate on the corresponding debt issue. Does
this mean that the component cost of a debt-plus-warrants package is less than the
cost of straight debt? Explain.
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Solved in 2 steps
- The use of warrants lowers the coupon rate on the correspondingdebt issue. Does this mean that the component cost of a debt-pluswarrants package is less than the cost of straight debt? Explain.1. Explain what a unsecured debt, subordinated debt, senior debt is? -is there risk in buying an unsecured debt and subsequently having the corp issue a senior debt? - Which types of debt of these would have the lowest interest rate, the highest?It is more provident that equity financing is more favored because of the ultimate risks associated within the cost of accumulating debt in terms of paying principal plus interest. Group of answer choices True False
- There are advantages and disadvantages of debt financing in contrast to equity financing. Which of the following is less likely to represent an advantage of debt financing? a. The cost of debt should be lower than the cost of equity for most companies due to the lower risk to the lender and the tax deductibility of interest b. The repayment of debt capital may affect the liquidity of the company c. If the return on assets exceeds the cost of debt, then this will result in a higher return on shareholders’ funds as compared to the return on assets d. The increase in borrowings will not normally affect the voting control of the current shareholders as compared to the issue of shares e. Fixed interest rate loans will result in the variability in the market value of such loans over time which will normally be less than the variability in the value of the equity of the companyThe issuance costs of new debt securities can be ignored since those costs will not be reflected in the yield to maturity of the debt in the future. Select one: a. False b. TrueIt is often argued that debt becomes a more attractive mode of financing than equity as interest rates decline and a less attractive mode when interest rate increases. Is this true? Explain.
- Describe the disadvantages of different methods of short-term debt financing.The key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity. true or false explainWhich of the following is incorrect about debt financing? A. Debt financing always generates excess returns which benefits equity investors b. One benefit of debt financing is that interest on most debt is fixed c. One benefit of debt financing is that interest is a tax deductible expense d. It increases financial leverage
- Select the correct statement: The value of a premium bond will fall over time, if cost of debt (rd) decreases The value of a discount bond will fall over time, if cost of debt (rd) does not change The value of a discount bond will increase ove time, if cost of debt (rd) does not change The value of a premium bond will increase over time, if cost of debt (rd) does not changeWhy do bonds offer lower average rates of return thanstocks?If bonds are issued at a discount, it means that the a. bondholder will receive effectively less interest than the contractual rate of interest b. market interest rate is lower than the contractual interest rate c. financial strength of the issuer is suspect d. market interest rate is higher than the contractual interest rate
