Background Louisville Farms, is a breeder of racehorses. The CEO John Carter needs assistance and advice with his financials to allow him to concentrate on the horse breeding rather than trying to figure out the best accounting approaches. You have been recruited as a consultant by the CEO as recent graduate from EU Business school to help out.

UESTION 2: (Points 15)

2.1. Define bonds and explain the type of bonds you think the CEO, Mr. Carter should look at and why?

2.2. Explain the income tax advantage of raising capital by issuing bonds rather than by selling capital stock.

2.3. There is a business saying that You shouldn't be in business if your company doesn't earn higher than bank rates. This means that if a company is to succeed, its return on assets should be significantly higher than its cost of borrowing. Explain this saying to Mr. Carter and tell him why is this so important?