An overview of corporate financing - Debt

4 important questions on An overview of corporate financing - Debt

Which rights does debt have?

  1. Debt has the first claim on the cashflows.
  2. It does not have right to residual cashflow
  3. And has no control right unless the firm defaults or violates the debt covenants. 

Is interest on tax deducted before tax income or after tax income?

Before tax income. Dividend on stocks are paid after tax.

Which intermediary holds the largest stake in company bonds?







Insurance companies

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Which questions should a financial manager ask when choosing which debt security to use?

  1. Long term vs short term?
  2. Fixed or floating rate?
  3. Dollars or other currency?
  4. What promised to make to the lender?
  5. Straight or convertable bonds?

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