BUSACC 0030 Lecture Notes - Lecture 10: Effective Interest Rate, Capital Structure, Interest Expense
Document Summary
Material covered: chapter 10: reporting and interpreting bonds. Announcements: case studies will be finished being graded soon. Understanding the business: the mixture of debt and equity used to finance a company"s operations is called the capital structure, debt funds from creditors, equity funds from owners. Characteristics of bonds payable: advantages of bonds: a. i. Stockholders maintain control because bonds are debt, not equity a. ii. The impact on earnings is positive because money can often be borrowed at a low interest rate and invested at a higher interest rate: disadvantages of bonds: b. i. Risk of bankruptcy exists because the interest and debt must be paid back as scheduled or creditors will force legal action b. ii. Negative impact on cash flows exists because interest and principal must be repaid in the future. Characteristics of bonds payable: two types of cash payments in the bond contract a. i.
