January 2015
Beginner
480 pages
31h 42m
English
Content preview from Financial Management: Core Concepts, Third Edition
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Chapter 16 Capital Structure
AT a Glance
LO1 Explain why borrowing rates are different based on ability to repay loans.
Repaying a loan requires cash, and different firms generate cash more consistently and thus can meet their debt repayment consistently. The more inconsistent the cash flows, the greater the probability a firm may not have sufficient cash on hand when it is time to repay all or part of a loan. Therefore, firms that have consistent cash flow can borrow at lower rates.
LO2 Demonstrate the benefits of borrowing.
When a company borrows in the capital markets at one rate and can invest in a project that returns a higher rate, the ...
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