Debt Finance Case Study

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Task 2. Email Response Financing the Business Discussion of Long term Debt Financing According to Kaufman survey in 75% of these newly established businesses used some sort of debt financing at start-up throughout US. Long term debt financing seems to be one the promising ways to raise fund for VeD however before coming to final decision lets critically analyze pros costs and benefits of this type of financing. Cost of debt refers to the interest rate which is paid on company’s (in our case VeD’s) debt. In many cases companies understand this phrase as a cost of debt which comes after-tax, but VeD should take into account that it also refers to a cost of debt of company before taking tax. As interest expenses are deductible the costs of…show more content…
There are many advantages of debt financing, including that it can finance any business regardless its type and size. Moreover, there are special programs which are designed to open a path for any type of entrepreneurs. If VeD chooses debt financing, then it will have a wide range of option to borrow debt, rather than bank loans. This is also one more advantage of debt financing, As an example lenders who charge more interest than banks do, however it can fund the businesses which have low credit scores. One more advantage is that, lenders like banks also have no say on how to run business, as investors have. But there are drawbacks which point out that businesses should repay their loan from the sizable portion of income each month. Additionally, despite the fact that business running bad or good, the businesses must pay their monthly obligatory payments, which are considered as a main disadvantage of debt financing. One of the businesses took advantage of debt financing would be Coca Cola…show more content…
Coca Cola maintains debt levels they consider prudent based on cash flows, interest coverage ratio and percentage of debt to capital. Coca Cola uses debt financing to lower their overall cost of capital, which increases their return on shareowners’ equity. As of December 31, 2006, Coca Cola’s long-term debt was rated ‘‘A+’’ by Standard & Poor’s and ‘‘Aa3’’ by Moody’s, and their commercial paper program was rated ‘‘A-1’’ and ‘‘P-1’’ by Standard & Poor’s and Moody’s, respectively. Coca Cola debt management policies, in conjunction with their share repurchase programs and investment activity, can result in current liabilities exceeding current assets. Issuances and payments of debt included both short-term and long-term financing activities. For instance, on December 31, 2006, Coca Cola had $1,952 million in lines of credit and other short-term credit facilities available, of which approximately $225 million was outstanding. The outstanding amount of $225 million was primarily related to Coca Cola international operations. The issuances of debt in 2006 primarily included approximately $484 million of issuances of commercial paper and short-term debt with maturities of greater than 90 days. The payments of debt in 2006 primarily included approximately $580 million related to commercial paper and short-term debt with maturities of greater than 90 days and approximately $1,383 million of net repayments of commercial

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