RSM230H1 Lecture Notes - Lecture 1: United States Treasury Security, Day Count Convention, Dbrs
Document Summary
Contraact between lender and borrower in terms of repayment of loan. Fully deductible for tax purposes by borrower and taxable for lender. Debt : interest cost and principal repayment are fixed contractual commi adhere to specific practices) Euity : an investor is an owner, shares in the profits of the business, and ha because equity is not a contract. Debt costs are legitimate costs of doing business and are tax deductible. Equity costs are not a cost of doing business -> they are returns to owner has paid all expences. Interest on debt is paid before corporate tax. Cp and ba are useful for large companies and ones with continuous financing needs amounts. Establish a loan to a firm with specified limit to a firms based on its creditworthiness. Operating/demand lc: made available for firms operating purposes; generally. Cost based on prime lending rate (a floating interest rate that fluctuates. Term/revolving lc: automatically adjusts as payments are made/received.
