Class Notes (1,100,000)
US (470,000)
UC-Irvine (20,000)
MGMT (700)
MGMT 1 (300)
Lecture 1

MGMT 1 Lecture Notes - Lecture 1: Merage Family, Promissory Note, Debenture


Department
Management
Course Code
MGMT 1
Professor
G Mclaughlin
Lecture
1

This preview shows half of the first page. to view the full 2 pages of the document.
Paul Merage School of Business
MGMT 1
Intro to Business Management
4 units
No Pre-reqs
Course code: 38001
tuesday/thursdays 9:30-10:50
Location:SB1 1200
Final: Thursday of finals week
Course Notes
Lecture: OBTAINING LONG-TERM FINANCING
OBTAINING LONG-TERM FINANCING
In setting long-term financing objectives, financial managers generally ask three
questions:
o What are our organization’s long-term goals and objectives?
o What funds do we need to achieve the firm’s long-term goals and objectives?
o What sources of long-term funding (capital) are available, and which will best fit
our needs?
Firms need long-term capital to purchase expensive assets such as plant and equipment,
to develop new products, or perhaps finance their expansion.
The board of directors and top management usually make decisions about long-term
financing, along with finance and accounting executives.
Long-term funding comes from two major sources: debt financing and equity financing.
Debt Financing
o Borrowing money the company has a legal obligation to repay.
o Debt Financing by Borrowing from Lending Institutions
Long-term loans are usually due within 3-7 years but may extend to 15-20
years.
Term-loan agreement a promissory note that requires the borrower to
repay the loan with interest in specified monthly or annual installments.
Advantage: the interest is tax-deductible.
Since the repayment period can be quite long, lenders assume more risk
and usually require collateral, which may be real estate, machinery, etc.
Lenders may also require certain restrictions to force the firm to act
responsibly.
Interest rate is based on the adequacy of the collateral, the firm’s credit
rating, and the general level of market interest rates.
Risk/return trade-off the principle that the greater the risk a lender
takes in making a loan, the higher interest rate required.
o Debt Financing by Issuing Bonds
You're Reading a Preview

Unlock to view full version