BUS 1 Lecture Notes - Lecture 3: Mortgage Loan
Document Summary
Raising long term financing (debt vs equity financing) Major + of debt financing -> deductibility of interest expense for income tax purposes -> lowers cost. Lecture note 11/21/2020: no loss of ownership. Drawback = financial risk: maybe unable to make scheduled interest/principal payments, lender can force borrower into bankruptcy. Equity = form of permanent financing that places some restriction on firm: not required to pay dividend/repay investment, gives common stockholders voting rights that provides voice. Common stockholders have voting rights. in borrower defaults on payments. Creditors management may be able to place restraints on management in event of default. Equity owners have a residual claim on income (dividends to income. Payment of interest and principal is a are paid only after paying interest and any scheduled and assets contractual obligation of the firm. principal) and no obligation to pay dividends.
