Corporate Debt : A Large Topic Essay

Corporate Debt : A Large Topic Essay

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Assignment 7
Corporate debt is a large topic. Within this topic there are many different advantages and disadvantages of corporate debt. One advantage of corporate debt is that it is a cheaper source of fund than equity up to a certain limit. Another advantage is it does not dilute the ownership of the company. Another advantage is that interest is tax deductible. It is an advantage that it increases the payout to equity stock holders when the company performs well. One last advantage is that it can be obtained for short term and long terms based on requirement. One disadvantage of corporate debt is that the payments of interest and principal must be made in time and the firm needs to have enough cash flow in time to manage that. Another disadvantage is that the cost of debt starts increasing after a certain leverage ratio due to increased risk. Another disadvantage of corporate debt is that the company needs good credit rating to secure a debt. Another disadvantage is that there may be need of collateral to get a loan. Failure to make a payment in time adversely affect the credit rating is another disadvantage of corporate debt. Another disadvantage is that failure cost may be high in the form of penalty and higher interest charges occur. One last disadvantage is that when the performance of the company is not good, the equity shareholders will get no or minimal return and causing the stock price to go down.

Another large topic discussed in chapter 16 is financial alternatives for distressed firms. One alternative is to keep and restructure. Solutions should be developed with the goal of delivering sustainable change and continuous process improvement. These solutions will focus on lowering operating costs, improving cash flow,...

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...and how they will affect the running of these new branches. Another risk is technological expansion. When extending reach overseas and across borders, there are a number of issues concerning the expansion of their technology systems that companies will have to face as well. The primary technological concern in expanding into foreign markets is in finding a way to centralize these systems so to best serve all the branches being developed worldwide. The final risk is joint ventures. One of the key strategies used by many organizations when looking to broaden their reach is in the use of joint venture strategies as a means of partnering with pre-existing, foreign companies. Entering into such a partnership offers a great many benefits, such as allowing the organization to gradually enter these new markets at a much lower risk than fully submerging themselves right away.

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