Why did the banks that lent Starbucks more than $2 billion require such a low return...

Why did the banks that lent Starbucks more than $2 billion require such a low return on their investment relative to Starbucks’ common shareholders who expect a 7.2% return?

Expert Solution

SHAREHOLDERS:

An Group of individual or organization who owns one or more than one shares of the company, and in whose name appear in the share certificate which is issued by the company.A company can have more than one shareholder and it's legal.

CREDITOR:

An individual or a financial institution who lends money to the company for its operations and to whom money is owed.For example Banks,Financial institution.

Banks lending amount to the company will be termed as long term liability depending on the period for which the money is lent.

DIFFERENCE BETWEEN EXPECTATION OF RETURN BETWEEN BANK AND SHAREHOLDERS:

Banks expect a fixed percentage of return from the lender i.e. company on the amount lent to the company which is predetermined or agreed to upon entering into the contract.

Shareholders are the individual who have invested their money in the company and have put their stake.They would generally expect a higher return compared to the other stakeholders of the company.

The dividend i.e.return for the shareholders is generally paid after all the appropriations that include interest on amount borrowed from banks and financial institution which implies that the return that is to be paid to banks is fixed whereas it's not the same for shareholders. This is the big reason why Shareholders expect higher return than that of banks.

ekkarill92 answered 9 months ago

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