State the reason for which the debt financing have a lower of cost than equity financing.

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Answer 1

Question

Chapter 14, Problem 1GI

To determine

State the reason for which the debt financing have a lower of cost than equity financing.

Expert Solution & Answer

Explanation of Solution

Debt Financing:

Debt financing refers to the act of raising money to meet the capital expenditures of the Company by selling debt instruments (bills, notes, and bond) to institutional investors or individuals. And then, the institutional investors or individuals become the creditors to whom the principal amount and interest on debt has to be repaid.

Reasons for which the debt financing have a lower of cost than equity financing are as follows:

Investment risk of debt is lower than stock and it offers considerably lower rate of return than stock.
Investors in equity securities usually generate a higher return on their investment.

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The comparative balance sheets and an income statement for Raceway Corporation follow. Balance Sheets As of December 31 Year 2 Year 1 Assets Cash $ 6,300 $ 48,400 Accounts receivable 10,200 7,260 Inventory 45,200 56,000 Prepaid rent 700 2,140 Equipment 140,000 144,000 Accumulated depreciation (73,400) (118,000) Land 116,000 50,000 Total assets $ 245,000 $ 189,800 Liabilities Accounts payable (inventory) $ 37,200 $ 40,000 Salaries payable 12,200 10,600 Stockholders’ equity Common stock, $50 par value 150,000 120,000 Retained earnings 45,600 19,200 Total liabilities and stockholders’ equity $ 245,000 $ 189,800 Income Statement For the Year Ended December 31, Year 2 Sales $ 480,000 Cost of goods sold (264,000) Gross profit 216,000 Operating expenses Depreciation expense (11,400) Rent expense (7,000) Salaries expense (95,200) Other operating expenses (76,000) Net income $ 26,400 Other Information Purchased…

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Answer 2

Question

Chapter 14, Problem 1GI

To determine

State the reason for which the debt financing have a lower of cost than equity financing.

Expert Solution & Answer

Explanation of Solution

Debt Financing:

Debt financing refers to the act of raising money to meet the capital expenditures of the Company by selling debt instruments (bills, notes, and bond) to institutional investors or individuals. And then, the institutional investors or individuals become the creditors to whom the principal amount and interest on debt has to be repaid.

Reasons for which the debt financing have a lower of cost than equity financing are as follows:

Investment risk of debt is lower than stock and it offers considerably lower rate of return than stock.
Investors in equity securities usually generate a higher return on their investment.

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Answer 3

Question

Chapter 14, Problem 1GI

To determine

State the reason for which the debt financing have a lower of cost than equity financing.

Expert Solution & Answer

Explanation of Solution

Debt Financing:

Debt financing refers to the act of raising money to meet the capital expenditures of the Company by selling debt instruments (bills, notes, and bond) to institutional investors or individuals. And then, the institutional investors or individuals become the creditors to whom the principal amount and interest on debt has to be repaid.

Reasons for which the debt financing have a lower of cost than equity financing are as follows:

Investment risk of debt is lower than stock and it offers considerably lower rate of return than stock.
Investors in equity securities usually generate a higher return on their investment.

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Answer 4

Question

Chapter 14, Problem 1GI

To determine

State the reason for which the debt financing have a lower of cost than equity financing.

Expert Solution & Answer

Explanation of Solution

Debt Financing:

Debt financing refers to the act of raising money to meet the capital expenditures of the Company by selling debt instruments (bills, notes, and bond) to institutional investors or individuals. And then, the institutional investors or individuals become the creditors to whom the principal amount and interest on debt has to be repaid.

Reasons for which the debt financing have a lower of cost than equity financing are as follows:

Investment risk of debt is lower than stock and it offers considerably lower rate of return than stock.
Investors in equity securities usually generate a higher return on their investment.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 14, Problem 1GI

To determine

State the reason for which the debt financing have a lower of cost than equity financing.

Expert Solution & Answer

Explanation of Solution

Debt Financing:

Debt financing refers to the act of raising money to meet the capital expenditures of the Company by selling debt instruments (bills, notes, and bond) to institutional investors or individuals. And then, the institutional investors or individuals become the creditors to whom the principal amount and interest on debt has to be repaid.

Reasons for which the debt financing have a lower of cost than equity financing are as follows:

Investment risk of debt is lower than stock and it offers considerably lower rate of return than stock.
Investors in equity securities usually generate a higher return on their investment.

Answer 6

Chapter 14, Problem 1GI

To determine

State the reason for which the debt financing have a lower of cost than equity financing.

Expert Solution & Answer

Explanation of Solution

Debt Financing:

Debt financing refers to the act of raising money to meet the capital expenditures of the Company by selling debt instruments (bills, notes, and bond) to institutional investors or individuals. And then, the institutional investors or individuals become the creditors to whom the principal amount and interest on debt has to be repaid.

Reasons for which the debt financing have a lower of cost than equity financing are as follows:

Investment risk of debt is lower than stock and it offers considerably lower rate of return than stock.
Investors in equity securities usually generate a higher return on their investment.

Answer 7

Chapter 14, Problem 1GI

To determine

State the reason for which the debt financing have a lower of cost than equity financing.

Answer 8

Expert Solution & Answer

Explanation of Solution

Debt Financing:

Debt financing refers to the act of raising money to meet the capital expenditures of the Company by selling debt instruments (bills, notes, and bond) to institutional investors or individuals. And then, the institutional investors or individuals become the creditors to whom the principal amount and interest on debt has to be repaid.

Reasons for which the debt financing have a lower of cost than equity financing are as follows:

Investment risk of debt is lower than stock and it offers considerably lower rate of return than stock.
Investors in equity securities usually generate a higher return on their investment.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Ch. 14 - Prob. 1GI Ch. 14 - Why does issuing debt result in an income tax...Ch. 14 - At the beginning of 2018, corporate tax rates...Ch. 14 - What is a bond? Define face value, maturity date,...Ch. 14 - What is the difference between a mortgage bond and...Ch. 14 - Prob. 6GI Ch. 14 - Prob. 7GI Ch. 14 - Prob. 8GI Ch. 14 - Prob. 9GI Ch. 14 - Prob. 10GI

State the reason for which the debt financing have a lower of cost than equity financing.

Concept explainers

State the reason for which the debt financing have a lower of cost than equity financing.

Explanation of Solution

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