LongTermDebtandLeaseFinancing文件材料.ppt

Call Feature Allows corporations for the retirement of security before maturity At some small premium over par, at the discretion of the corporation A preferred issue carrying a call provision will be accorded a slightly higher yield than a similar issue without this feature Advantages and Disadvantages of Debt Disadvantages of Debt: interest and principal must always be met when due, regardless of a firm’s financial position agreements may restrict financial management in firm poor use of debt may lower a firm’s stock price expensive financing when interest rates are high PPT 16-20 Leasing as a Form of Debt Leasing has the characteristics of a debt A corporation contracts to lease and signs a noncancelable, long-term agreement Companies are expected to fully divulge all information about leasing obligations Leasing was made official as a result of Statement of Financial Accounting Standards (SFAS) No. 13: issued by the FASB in November 1976 Capital Lease (Financing Lease) Four conditions for identification include: The arrangement transfers ownership of the property to the lessee by the end of the lease term The lease contains a bargain purchase price at the end of the lease The lease term is equal to 75% or more of the estimated life of the leased property The present value of the minimum lease payments equals 90% or more of the fair value of the leased property at the inception of the lease Operating Lease Does not meet the conditions of a capital lease Usually short-term, cancelable at the option of the lessee The lessor may provide for the maintenance and upkeep of the asset Does not require a capitalization, or presentation, of a full obligation on the balance sheet Income Statement Effect Capital lease Requires treatment similar to a purchase-borrowing arrangement Intangible asset is amortized, or written off, over the life of the lease - annual expense deduction Liability account is written off through regular amortization - implied interest cost on th