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The calculation of the after - tax cost of debt versus the cost of equity plays a major role in managing capital costs for a
The calculation of the aftertax cost of debt versus the cost of equity plays a major role in managing capital costs for a company. Knowing the difference between the cost of debt and the cost of equity would determine how you would manage the cost of capital within a company.
You are the CFO of a company that is considering issuing its first bond issue to the public.
You have been asked to present a few matters related to debt bond financing to the board of directors.
Please briefly explain to the board: the usual collateral position of bondholders lenders versus equity investors, why common stockholders can demand a higher rate of return than lenders, and why you would suggest debt or equity financing.
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