Risk and return - issue of debt, Financial Accounting

Assignment Help:

Q. Risk and Return - issue of debt?

Raising debt finance will raise the gearing and the financial risk of the company while raising equity finance will lower gearing and financial risk. Financial risk occurs since raising debt brings a commitment to meet regular interest payments whether fixed or variable. Breakdown to meet these interest payments gives debt holders the right to appoint a receiver to recover their investment. In contrast there is no authentication to receive dividends on ordinary shares only a right to participate in any dividend (share of profit) declared by the directors of a company. If profits are low then dividends are able to be passed but interest must be paid regardless of the level of profits. Moreover increasing the level of interest payments will increase the volatility of returns to shareholders since only returns in excess of the cost of debt accrue to shareholders.


Related Discussions:- Risk and return - issue of debt

Control of business activity, A huge number of financial ratios are in util...

A huge number of financial ratios are in utilized. They complete a broad variety of functions and objectives. Managers estimate performance and investors match their expectations,

What is capitalized interest, Q. What is Capitalized Interest? Capitali...

Q. What is Capitalized Interest? Capitalized Interest - INTEREST cost incurred during time required to bring an ASSET tothe condition and location for its intended use and incl

#title. incomplete records, Assignments with the answer for tafe sa 4 editi...

Assignments with the answer for tafe sa 4 edition. Question 11, page 76 and question 39, page 89

Writing a dissertation, I want to do a custom dissertation on IAS 40 invest...

I want to do a custom dissertation on IAS 40 investment property which needs to include a brief outline, positive as well as negative international critique with respect to the sta

What do you mean by bankruptcy, Q. What do you mean by Bankruptcy? Bank...

Q. What do you mean by Bankruptcy? Bankruptcy - Legal process, governed by federal statute, whereby the DEBTS of an insolventperson are liquidated after being satisfied to the

What is the pretax stock compensation, Refer to the Consolidated Statements...

Refer to the Consolidated Statements of Shareholders' Equity (pp. 62-63), Consolidated Statements of Cash Flow, including an abstract from Note 2, Cash Flow Information (pp. 61 and

Determine about the accounting information, Determine about the accounting ...

Determine about the accounting information Numerous user groups have an interest in accounting information relating to a business. Majority of these are outside the business ho

What is primary financial purpose, Q. What is primary financial purpose? ...

Q. What is primary financial purpose? The primary financial purpose of a company is typically stated to be the maximisation of shareholder wealth and Sassone plc has declared p

Cash flow estimation and capital budgeting, Cash flow Estimation and Capita...

Cash flow Estimation and Capital Budgeting XYZ Electronics, Inc. is a manufacturer of eBook Readers. Its current model is selling excellently. However, in order to cope with t

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd