Week 5
1. Organizations that decide to issue bonds generally go through a series of steps. Discuss the steps.
The first step is for the borrower to evaluate its capital plan, gage its debt capacity, and get the house in order. Step 2 is for the borrower to select the parties that are to be involved with the issuance of the bond. Step 3, is for the borrower to get their credit rating, by a credit rating agency. Step 4, is for the credit rating agency to rate the bond to determine amount to be issued. Step 5, is for the borrower to enter into a loan agreement with the bond issuer. Step 6, bond are sold and the proceeds are given to the borrower.
2. An alternative to traditional equity and debt financing is leasing. Leasing is undertaken primarily for what purposes?
Leasing can help to save a company money, by avoiding interest rates that may otherwise have to pay for purchasing items needed for the company. Another reason for leasing is paying less interest that a company would by a bank loan. Ultimately leasing can help to save a company tons of money vs debt financing.
3. Discuss the two major types of leases.
According to our book the two major types of leases are capital lease and operating lease. Capital lease also known as financial lease is where the “lessor aims to lease an asset for virtually all its economic life” (Cleverly, 2011)and the lessee is committed to make these payments for the whole lease period. Operating lease involves equipment and this is a lease that is for a shorter period than the equipment’s lifespan, the lifespan is determined by depreciation value, and this lease is usually cancelable.
4. Discuss the terms short term borrowing and long-term financing
Short term borrowing/financing means funds are to be paid back in less than a year. So short term borrowing a borrower is paying less interest over that years’ time. Whereas, long term financing involves funds being paid over in over a year or greater, and means more interest to be paid
The first step is for the borrower to evaluate its capital plan, gage its debt capacity, and get the house in order. Step 2 is for the borrower to select the parties that are to be involved with the issuance of the bond. Step 3, is for the borrower to get their credit rating, by a credit rating agency. Step 4, is for the credit rating agency to rate the bond to determine amount to be issued. Step 5, is for the borrower to enter into a loan agreement with the bond issuer. Step 6, bond are sold and the proceeds are given to the borrower.
2. An alternative to traditional equity and debt financing is leasing. Leasing is undertaken primarily for what purposes?
Leasing can help to save a company money, by avoiding interest rates that may otherwise have to pay for purchasing items needed for the company. Another reason for leasing is paying less interest that a company would by a bank loan. Ultimately leasing can help to save a company tons of money vs debt financing.
3. Discuss the two major types of leases.
According to our book the two major types of leases are capital lease and operating lease. Capital lease also known as financial lease is where the “lessor aims to lease an asset for virtually all its economic life” (Cleverly, 2011)and the lessee is committed to make these payments for the whole lease period. Operating lease involves equipment and this is a lease that is for a shorter period than the equipment’s lifespan, the lifespan is determined by depreciation value, and this lease is usually cancelable.
4. Discuss the terms short term borrowing and long-term financing
Short term borrowing/financing means funds are to be paid back in less than a year. So short term borrowing a borrower is paying less interest over that years’ time. Whereas, long term financing involves funds being paid over in over a year or greater, and means more interest to be paid