Question

The calculation of after-tax cost of debt plays a role in managing capital costs. You have been asked to present a few matters related to Debt (Bond) financing to the Board of Directors.

why you would suggest debt (or equity) financing?

Answer 1

why would a company use bonds as a source of financing:-

     

              Generally corporation or any business organizations can often borrow money or money worth from the public. Also borrow at lower interest rate than the commercial banks offering. By issuing bonds directly to the investors or public, in which companies can eliminate the banks as middlemen roles in the transactions, so we can achieve more efficiency in this bond financing transactions.

HOW THE CALCULATIONS OF After tax cost of debt PLAYS A ROLE IN MANAGING CAPITAL COST:-

           We know that cast of debt is the return that a company corporations provides to its debtholders and creditors. it is relatively more straightforward to calculate the cost of debt than the cost equity, it is also reflect the level of interest rates in the financial markets.