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financial applications of business loans

What are the financial applications of business loans, bonds, and treasury notes.

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Business Loans
They are the funds borrowed from the individual or organization on the commitment of payment of interest and return of the principal on maturity. Thus , it is a component of debt.

Utility of Business Loans
A firm's optimal capital structure is that mixture of debt and equity than minimizes its weighted average cost of capital (WACC). It turns out that, while debt reduces a company's tax liability because interest payments are deductible expenses, increasing amounts of debt raise both the cost of equity capital and the interest rate on debt because of the increasing probability of bankruptcy. In other words, higher amounts of debt raise the financial risk of a company, ...

Solution Summary

The solution examines financial applications of business loans and treasury notes.