Thoery of Company Debt Accounting, Finance, SPSS Coursework (Coursework Sample)
The effects of a growing company debt and its effects on the companysource..
The Debt of a Company
Conventional wisdom dictates that the more a company borrows, the more it hopes to invest in the borrowed cash. However, corporate and personal tax rates significantly affect the attractiveness of the loan from situation to situation. As such, high leverage costs also attract the company to adapt flexible financial policies that will drive it to achieve its strategic goals. As such, the big question of how much loan a company wishes to secure is largely determined by its board of directors CITATION Pip82 \l 2057 (Piper, 1982).
The number one theory behind the maximum amount of loan a company can get is the inflation theory. It goes to state that a high inflation rate severely affects the financial needs of a company as well as weakening its balance sheets. With increased inflation, a firm is pressed with increased costs of acquiring new plants and equipment. The working capital is also significantly affected by the weight of the growing interest in paying off the debt. In a worst-case scenario where the firm secures a large sum of short term loans, it will be faced with a varying rise in the interest rates CITATION Pip82 \l 2057 (Piper, 1982).
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