Introduction to Debt Policy

Essay specific features

 

Issue:

Business

 

Written by:

Sean H

 

Date added:

February 23, 2012

 

Level:

University

 

Grade:

A

 

No of pages / words:

8 / 2154

 

Was viewed:

6696 times

 

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Essay content:

The greater the firm's business risk, the lower its optimal debt ratio. · The firm's tax position. A major reason for using debt is that interest is tax deductible, which lowers the effective cost of debt. However if most of a firm's income is already sheltered from taxes by depreciation tax shields, by interest on currently outstanding debt, or by tax loss carry forwards, its tax rate will already be low, so additional debt will not be as advantageous as it would be to a firm with a higher effective tax rate...
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Corporate treasurers know that a steady supply of capital is necessary for stable operations, which is vital for long-run success. They also know that when money is tight in the economy, or when a firm is experiencing operating difficulties, suppliers of capital prefer to provide funds to companies with strong balance sheets...
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