CH 9, 10, 11 P1

Capital Structure- a mixture of liabilities and stockholders' equity, a business uses 

• Debt financing-borrowing money

• Equity financing- obtaining investment from stockholders

Cost of financing 

• Debt-interest expense tax deductible (notes, leases, and bonds)

• Equity- dividends are not tax-deductible

Installment payment- interest on the borrowed amount, reduction of the outstanding loan balance 

Bond- a formal debt instrument issued by a company to borrow money

Bond issued at a premium- carrying value decreases over time

Bond issued at a discount- carrying value increases over time

Debt-to-equity ratio- the best ratio to measure financial leverage

Primary concepts of stockholders' equity

• Paid-in capital- is the amount stockholders have invested in the company

• Retained earnings- are the amount of earnings the company has kept or retained 

• Treasury stock- is a company's own issued stock that has been repurchased 

Angel investors- wealthy investors like those featured on the television show Shark Tank

venture capital firms- provide additional funding and business expertise

Initial public offering- the first time a corporation issues stock to the general public 

Publicly held corporation- allows public investments, more stockholders, regulated by the SEC ex Walmart

Privately held corporation- no public investment, few stockholders, not regulated by the SEC ex Mars Chocolate