MGCR 211 Lecture Notes - Lecture 9: Bond Market, Promissory Note, Commercial Bank
Document Summary
Cash flows must be planned to meet payments and maturity dates. Companies often replace old debt with new debt. Special conditions on the debt (ie: maintain certain ratio of debt to equity) Failure to comply means debt is due immediately. Higher debt means higher risk and thus less leverage and shareholder wealth. Rate of return on investment must be higher than the cost of debt. Commercial paper- a promissory note sold to another business. Loan amortization table shows proportion of interest and principle in payments. Bonds- funds raised through stock market or debt market. Debt market- money is borrowed from the bank, bonds are sold to investors. Market value is determined with pv of principle and pv of a series of payments. Collateral trust bond uses shares and bonds of other companies as collateral. Leases- the lessee makes periodic payments to the lessor to use the asset. Operating lease for a short lease term (relative to asset life)