Question

Why do companies buy the equity and debt of other companies?

Answer 1

Why do companies buy equity of other companies?

Answer- Following are the reasons-
1. For the purpose of capital appreciation i.e. Long Term Investment;

2. To receive regular other income e.g. Dividend i.e. Long Term/Short Term Investment;

3. To acquire control over the other companies i.e. more than 50% of the paid up capital;

4. To become associate of the company;

5. To acquire/merge the other company;

Why do companies buy the debt of other companies?
Answer- Following can be the reasons-

1. Company has the business of purchasing the debt of other companies;

2. Company wants to increase its interest expense i.e reduce its profit;

3. Company wants to share some financial burden i.e. loan/debt with subsidiaries and/or associates.