Long Term Debt

 

Corporate debt has been increasing dramatically in recent years. Most people view debt in a negative light. However, with a little balance, debt can be beneficial. For this discussion, address the following:

Discuss the benefits and drawbacks of corporate debt.

Explain how financial managers can assess the company’s debt structure, and determine how reasonable it is.

Describe the factors one should consider when deciding if a company’s debt should be increased or decreased.

 

Sample Solution

Long Term Debt

Debt is the money borrowed by one party from another to serve a financial need that otherwise cannot be met outright. Corporate debt is the money that is owed by companies rather than by governments or individual people. Like most important aspects of treasury, corporate debt has its benefits and drawbacks. The main benefit is saving tax. The main drawback is added risk for all the company`s stakeholders. Corporate value is optimized when these offsetting factors are appropriately balanced. Corporate debt is a big deal. It is such a big deal that companies value their capital structure based on how effectively they manage debt.

Free trade allows free movement of labour and capital across countries and regions. Free movements of labour and capital ensure that countries under the trade treaties are able to acquire the necessary factors of production for their businesses that will help them to improve their productivity and output. In late 1950, some of the countries in Europe suffered shortage of labour while other experienced high levels of unemployment. For example, Italy experienced economic problems such as high levels of unemployment while other countries such as Germany were lacking different types of labour and shortage on experts (Zaiceva, & Zimmermann, 2008 p. 429). Presence of free trade that was steered by European Economic Community ensured that Germany could be able to get labour from Italy at no cost. As a result Germany was able to get experts that it lacked while Italy benefitted from reducing the level of unemployment. Free trade helps to settle unemployment problems in developing countries as it allow free movement of people from their countries to more developed ones where they are able to get employments. This in turn helps them to reduce unemployment rates and realise their economic goals from increased income from abroad. Consequently, the income of people increases resulting in improved standards of living for the people in developing countries. Free movement labour created employment raising the economic status of people, which was a greater achievement towards country economic goals on reduction of unemployment (Nicoleta, & Camelia-Daniela, 2011 p. 303). As a result poverty is reduced in these countries, which is one of the millennium development goals for them. Movement of highly skilled labour to developed countries also results in high performance of domestic industries thus increasing their productivity, which in turn contribute to economic growth of the recipient country. The initiative was purely inclined to economic gains and there was no any political involvement or interference during the whole process. Moreover, the policy saw drastic improvement of the economy in the region. From this literature, it can be noted that free trade provision to free movement of labour contributed both to reduction of unemployme

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