Question

Discuss and answer at least two of the questions listed below in detail, or any related...

Discuss and answer at least two of the questions listed below in detail, or any related topic you'd like to add. Remember, you need at least two substantive posts per chapter for full credit:

From what sources might a corporation obtain funds through long-term debt? What is a bond indenture? What does it contain?

What are zero-interest bonds? How are they presented in the financial statements? Why would a company issue zero-interest bonds?

What are the benefits and drawbacks of high-yield bonds? What is off-balance sheet financing? What is the idea behind it? Is it ethical?

Homework Answers

Answer #1

a. Sources that might a corporation obtain funds through long term debt are Bonds, Long term notes, mortgages and lease

A bond arises from a contract

1) a sum of money at a designated maturity date

2) periodic interest at a specified rate on the maturity amount.

b. A zero-interest bond is another name of zero coupon bond, it is a bond where the face value is repaid at the time of maturity and it is issued at discount.
It must be presented as Bonds payable in long term debts in the liabilities column of balance sheet of financial statements.

It is a way to raise capital without a) diluting the equity ownership of the company and b) not imposing an ongoing drain on cash flow in the form of ongoing interest payments. That said, though, zero coupon issuers will often establish a sinking fund toward meeting the future obligation.

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