Question

discuss the importance of debt equit swap

Answer 1

Whenever a company likes to have control on the Capital structure in terms debt and equity in order to increase shareholder's wealth or control over debt for longer existence of the company, the consideration of a debt/equity or equity/debt swap could be there.

Under the debt/equity swap, the Debtholders of the company are offered common stock in order to reduce the fixed interest expenses pressure on the Net Income of the company. Thus, the importance of the Debt to equity swap lies in reduction of debt contant of the capital structure of the company. To implement the contractual obligations of some agreement or to improve the Equity to Debt ratio of the capital structure or to reduce the fixed interest cost of the company or to increase returns to the common stock-holders.

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