MGAC02H3 Chapter 14: Chapter 14 Notes
Document Summary
Summary of learning objectives: understand the nature of long-term debt. Incurring long-term debt is often a formal procedure. Corporation bylaws usually require the approval of the board of directors and the shareholders before bonds can be issued or other long-term debt arrangements can be contracted. Generally, long-term debt has various covenants or restrictions. The covenants and other terms of the agreement between the borrower and the lender are stated in the bond indenture or note agreement. Notes are similar in substance to bonds but do not trade as readily in capital markets, it at all. The variety of types of bonds is a result of attempts to attract capital from different investors and risk takers and to satisfy the issuers cash flow needs: understand how long-term debt is valued and measured. The investment community values a bond at the present value of its future cash flows, which consist of interest and principal.
