Why does a firm use long-term debt? The week 3 lecture points out advantages and disadvantages of long term debt. Do the advantages of long-term debt outweigh the disadvantages? At what point is a firm over burdened with debt? Why do some large, publicly held firms have little or no long-term debt on their balance sheets?
Meaning of long term debt:
Long term debt means the debt owed by the company to the outside entities with a promise to repay the debt after specific period of time and the company will pay interest periodically on the amount owned. If the amount is repayable after the period of one year, then it is long term debt.
Why does the firm use long term debt?
If the company is going for expansion or diversification, or starting the new business, the company will have financial needs. Long term debt is used by the company for its financial needs.
Advantages of using long term debt:
1. The main advantage of using long term debt is the amount of debt will be with the company for long time and at the same time the founders ...
The expert determines why a firm uses long-term debt.