Chapter 16, Problem 13DQ

Summary Introduction

To explain: The similarity between the problems of bond refunding and capital budgeting. 

Introduction:

Bond:

It is a long-term loan borrowed by the corporations, organizations, and the government for the

purpose of raising capital. It is issued at a fixed interest depending upon the reputation of the

corporations and also termed as fixed-income security.

Bond refunding:

It means paying off higher-cost debt bonds to the issuer of the bonds that have a lower net cost. This decreases the financial cost of any firm.

Capital budgeting:

It is the formal process used by a corporation to determine any potential expense or any significant investment. It is used by businesses for the determination of whether a proposed investment or fixed asset should be purchased or not.