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Finance assignment1 - Essay Example

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(d) Under Imputation system, the tax payable by the company is deductible for the tax computation of shareholders. The imputation system, when the company's tax is avoided the calculation will be as follows:
Among the various sources of capital, debt is an important and popular source of long term fund for small as well as big firms…
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Finance assignment1
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Download file to see previous pages 64400
36000
28400
Since the least payment to be paid by Alresford to Gibson under third option, i.e., 28400, it is advisable to go ahead with third option.
(d) Under Imputation system, the tax payable by the company is deductible for the tax computation of shareholders. The imputation system, when the company's tax is avoided the calculation will be as follows:
Operating cash flow
north
south
total
cost of capital
market value
12000
12000
24000
18%
4320
12000
8000
20000
18%
3600
16000
8000
24000
18%
4320
20000
4000
24000
18%
4320
PART B
The Cost and Benefits of Debt
Introduction
Among the various sources of capital, debt is an important and popular source of long term fund for small as well as big firms. Other sources include equity and preference shares and retained earnings. Debt is a long term arrangement with a lender by a company to avail finance on a certain set of conditions. The lender may be banks and financial institutions, public, and other corporations issuing debt securities. The company can avail debt capital in various forms such as bonds, long term loans from banks and financial institutions etc. Bond is the most common form of debt security issued by a corporation. Bonds are issued by governments also in time of financial crisis. Debt is the least cost and hence the most popular source of capital for corporations. In addition to that it has many advantages. As bonds are the common form of debt capital, bonds and debt are often used interchangeably. Moreover, the attributes of bonds as a source of long term capital are similar to any other debt capital. Therefore, the following discussion of cost and benefits of debt is common to bonds and long term loans.
Cost of Debt
Debt is a long term agreement with a lender (bank or public) by a...
The company can avail debt capital in various forms such as bonds, long term loans from banks and financial institutions etc. Bond is the most common form of debt security issued by a corporation. Bonds are issued by governments also in time of financial crisis. Debt is the least cost and hence the most popular source of capital for corporations. In addition to that it has many advantages. As bonds are the common form of debt capital, bonds and debt are often used interchangeably. Moreover, the attributes of bonds as a source of long term capital are similar to any other debt capital. Therefore, the following discussion of cost and benefits of debt is common to bonds and long term loans.
Debt is a long term agreement with a lender (bank or public) by a company to avail funds on the condition that interest shall be paid by the latter to the former during the period of debt and the principal shall be paid at the end of maturity period. The interest to be payable by the company to the lender is known as the cost of debt. In other words, cost of debt is the interest payable by the company to the lender for using the latter's hard earned money. The interest payment is to be made annually or semi-annually depending upon the terms of agreement. ...Download file to see next pagesRead More
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