Summarize types of long term debt and compare to leasing
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Prepare a summary that explains the types and features of long-term debt and the advantages and disadvantages of leasing with debt versus equity financing.
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The solution summarizes the types of long term debt and compares it to leasing.
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Long term debt is the debt owed by the company which should be repaid after the period of one year.
Types of long term debt are:
1. Bonds
2. Debentures
3. Bank loan
4. Loan from financial institution
Features of long term debt:
1. The amount of debt owed by the company has to be repaid after the period of one year.
2. It is shown under liability side of the balance sheet.
3. The persons/institutions who provide long term debt to the company are creditors of the company who has preferential right over the common stockholders.
4. Interest at a specified percentage on the amount of debt is to be paid on fixed periodic intervals.
5. Interest to be paid on long term debt is charge against the profit which should be paid irrespective of whether the company makes profit.
6. Long term debt is to be repaid after a specific period of time.
7. Long term debt is usually accepted by the company for making major expansion or diversification and not for running day to day operations of the company.
Advantages and disadvantages of leasing;
Lease ...
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