Finance assignment1 Essay Example | Topics and Well Written Essays - 2250 words

Finance assignment1 - Essay Example 64400 36000 28400 Since the least payment to be paid by Alresford to Gibson under third option, i.e., 28400, it is advisable to go ahead with third option. (d) Under Imputation system, the tax payable by the company is deductible for the tax computation of shareholders. The imputation system, when the company's tax is avoided the calculation will be as follows: Operating cash flow north south total cost of capital market value 12000 12000 24000 18% 4320 12000 8000 20000 18% 3600 16000 8000 24000 18% 4320 20000 4000 24000 18% 4320 PART B The Cost and Benefits of Debt Introduction Among the various sources of capital, debt is an important and popular source of long term fund for small as well as big firms. Other sources include equity and preference shares and retained earnings. Debt is a long term arrangement with a lender by a company to avail finance on a certain set of conditions. The lender may be banks and financial institutions, public, and other corporations issuing debt securities. The company can avail debt capital in various forms such as bonds, long term loans from banks and financial institutions etc. Bond is the most common form of debt security issued by a corporation. Bonds are issued by governments also in time of financial crisis. Debt is the least cost and hence the most popular source of capital for corporations. In addition to that it has many advantages. As bonds are the common form of debt capital, bonds and debt are often used interchangeably. Moreover, the attributes of bonds as a source of long term capital are similar to any other de bt capital. Therefore, the following discussion of cost and benefits of debt is common to bonds and long term loans. Cost of Debt Debt is a long term agreement with a lender (bank or public) by a...The company can avail debt capital in various forms such as bonds, long term loans from banks and financial institutions etc. Bond is the most common form of debt security issued by a corporation. Bonds are issued by governments also in time of financial crisis. Debt is the least cost and hence the most popular source of capital for corporations. In addition to that it has many advantages. As bonds are the common form of debt capital, bonds and debt are often used interchangeably. Moreover, the attributes of bonds as a source of long term capital are similar to any other debt capital. Therefore, the following discussion of cost and benefits of debt is common to bonds and long term loans. Debt is a long term agreement with a lender (bank or public) by a company to avail funds on the condition that interest shall be paid by the latter to the former during the period of debt and the principal shall be paid at the end of maturity period. The interest to be payable by the company to the lender is known as the cost of debt. In other words, cost of debt is the interest payable by the company to the lender for using the latter's hard earned money. The interest payment is to be made annually or semi-annually depending upon the terms of agreement.