Topic: Presentation to the Board of Directors, the Pros and Cons of Debt Financing

January 9, 2024January 9, 2024 Discipline: Finance

Topic: Presentation to the Board of Directors, the Pros and Cons of Debt Financing

The calculation of the after-tax cost of debt versus the cost of equity plays a major role in managing capital costs for a company. Knowing the difference between the cost of debt and the cost of equity would determine how you would manage the cost of capital within a company.

You are the CFO of a company that is considering issuing its first bond issue to the public.

You have been asked to present a few matters related to debt (bond) financing to the board of directors.

Please briefly explain to the board: (1) the usual collateral position of bondholders (lenders) versus equity investors, (2) why common stockholders can demand a higher rate of return than lenders, and (3) why you would suggest debt (or equity) financing.

Your initial discussion post must include one outside resource, which may include the Internet or Library, and must be cited according to current APA formatting.

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