why is interest expense said to cost the firm substantially less than the actual expense?
957045
Wow, do you ever know how to phrase a question.  Let's see if I can guess what you are saying.  You have "interest expense" and "dividends" and you are concerned about costs.\n\nInterest can be an expense or revenue, depending on whether you are paying for what you owe or receiving for what you loaned, respectively.  Dividends are payments from profits for stockholders.  Since we are talking about costs, the first issue is 'costing' borrowed money.  \n\nWhy does a firm borrow money?  To use it to help make more money.  If you are buying raw materials to work with, then you add value to the materials when you work on it, but still there are waste and shortage issues (I bought boards 8 feet long, but they have to cut them to 7 feet, so I lose a board for every 8 we work with), so some of the value is lost in the process of using.  This is different from borrowing money to buy a million coins to cull out the old and rare in the batch, then I only lose money if some cheaper foreign coin is unaccountably in the mix and I won't get full credit when selling them back to the bank or store chain I got them from or whatever.  If I had to cash in the whole thing at the moment, such as if the bank has a "call" provision and they simply said they wanted their money back right now, I would come up short on the prinicple of the loan, perhaps to a greater degree than I would on the interest on the loan for the period elapsed.  \n\nA loan that paid for a hundred truckloads of tomatoes is expensed for the amount of the delivered tomatoes, but if the loan is suddenly "called" and you have them half squashed for making ketchup, you aren't anywhere near a sellable product for which you can repay the loan and perhaps profit from it, the original intent of the enterprise.  The cost of delivered tomatoes and the cost of processing are just costs.  The cost of tomatoes is just part of a larger operating expense, but one that is tied to the others.  A certain high-dollar mashing and straining machine will just sit there if there are no tomatoes.  The operator will likewise be an empty expense if there are no tomatoes.  You borrow money to buy tomatoes, suddenly that cost gets bundled with the operating and amortization costs of the machine that processes them, it is a bundled value that could easily exceed the cost of interest during that operating day.  By the way, I know a company in Arizona that had something like this happen to it, and the stockholders got no dividends--their company had to close because of some absurd financial decision to terminate a contract in the middle of operations.  No one wanted the half-mashed tomatoes as a small ketchup maker was forced to close its doors and layoff a lot of good people when a manager in another company wanted to simplify his life by getting this contract off his to-do list before vacation.  Business can be like that at times.
1031550
Ordinarily when there is a judgment entered in the court record, that is what is legally binding.  The company will have ensured that if the payment was not in full, then they have the right to charge reasonable interest until it is paid.  The Court would have accepted this and it would be part of the judgment against you.
1136609
There is a huge difference between  bankers and venture capitalists. And I'm not just referring to the cost of borrowing so tread cautiously here.\n\nBefore I can provide you with advice I need a little more information. How long have you been in business?  About how many people work there?  Why do you need the money?\n\nJust a quick note " fund some of our operations " might suggest you need money just to keep the business open. If this is not the case it may be better to delete this part of your question.
99010
I'm not sure but i think operating and financing are 2 different categories.  the difference i think is that operating are expenses related to assets.
378682
No, it cannot. The logic is essentially as follows:\n1. A firm is said to have economy of scale when it's cost per unit decreases when volume increases\n2. Cost has 2 components: fixed (e.g. infrastructure, factory) and variable\n3. In most cases investment that requires fixed cost has an optimal point at which unit cost is at the lowest, i.e. unit cost is higher before and after that (e.g. For a production facility that at optimal point can produce 100 units of goods per hour, its unit cost to produce the 101th unit will be higher than the 100th)\n4. Therefore, economy of scale cannot be indefinite
105970
Accounting mistakes can be very costly for a business or firm, potentially leading to legal troubles or financial loss. Accountants are paid to not make mistakes.
454085
This is generally true, but not always. If a closed-end fund invests in securities not easily purchased by individuals you will usually find a premium.\n\nBack to the question of the discount...\nThere are multiple reasons why discounts exist. One can be the "value" of the manager. If the manager is perceived as one who subtracts (rather than adds) value then a discount is natural. Another reason may have to do with liquidity: turning the portfolio into real cash - to which no discount should be applied - may incur many more costs and delays (another type of cost) than investors might think. A further reason might be lack of transparency: if the investing public is less than sure what the fund owns at a particular moment then a discount is only prudent.
449192
Some companies think it will save them money (although rarely are all the costs including opportunity costs considered) some companies do so because they do not have the necessary resources in house
98992
Because your debt of capital is greater in the beginning.  This is called french system, which amortizes capital in increasing form therefore the interest load is decreasing.
69556
The problem that you may have, is not taking into account the opportunity costs, which is the money that mike would be making if he wasn’t running a business(70K), and also the money mike's not getting from renting out the building that he has(20K).adding these costs to the costs of running the business results in:\n70K+20K+95K+170K=355K
274167
It depends. If the firm has fixed-rate long-term debt, then changing interest rates would not affect is profitability unless the company were to reacquire that debt in the open market prior to maturity. If the long-term debt has a variable interest rate, then the firm would be affected by changing rates. In the short-run, many firms have lines are credit that are almost always based on current market rates, so changing interest rates would affect their short-term borrowing expenses.
837413
net assets has to equal equity.  check your other comprehensive income accounts. that could be the source of your error.  it includes such things as some derivative costs, foreign currency gains and losses.  (sorry, i'm assuming u.s. accounting.  don't know if you use this concept in u.k.)
4056
Assuming you're talking about indexing...\n\nETFs generally have lower expenses, but you buy them like stocks & pay comissions.\n\nMutual funds have higher expenses, but you generally don't (or shouldn't) pay fees to get into them.\n\nIf you're looking at periodically (say each payday) adding to the investments, mutuals may be cheaper since you don't pay comissions each time.\n\nIn the long run, an ETF that mirrors the same index as a mutual fund will be cheaper because the fund expenses keep eating away at your returns.
852142
No.  That's totally and utter jibberish.  Your first tip that the previous answer is wrong is that taxes and expenses are not even on the balance sheet.  Secondly, liabilities are credited, not debited.  Third, well... third is that it just doesn't make any sense. \n\nHere's what it is...\n\nThe difference is basically between "US" and "UK" style presentation of the balance sheet.\n\nThe UK uses "Net Assets", which is assets minus liabilities on one side balanced by equity on the other side.  The balance sheet balances, but it basically analyzes it from an equity holder's perspective (e.g. "where did my money go?")\n\nThe US uses "Total Assets", which is assets.  The other side is balanced by liabilities and equity. The balance sheet balances, but it analyzes it from a corporate perspective (e.g. "I have all this stuff, but how did I finance it?").
193792
Possibly because you haven't been paying the minimum interest payments. I know on my interest only mortgage, they allow me to do this without penalty, essentially increasing my principle each month. They actually highlight an amount on my statement that is less than my interest, trying to trick me into paying less today. It's all part of the scam. Read your statement carefully and pay more than just the interest due.
605062
There are numerous ways to do cost basis.  The way that you are referrring to is the FIFO method, which is fine.  You might pay a bit more if the stock went up since your cost basis for the original shares is lower, but this would be offset by the long-term treatment.\n\nAs long as you keep track of which shares went where with the dates and the rest of the documentation, you're free to use that method.
1171502
Companies do not tend to give out this sort of information!\n\nWith costings, remember that the cost of the individual components does not make up the whole cost.   Think of making a cake - the flour, butter, eggs and sugar are not the only things you have to price into how much it costs to make.   There is petrol used to get the ingredients to your house, gas to cook the cake, electricity for the blender, electricity to light the kitchen, your labour costs, household insurance, water rates and council tax (pro rata for the time it takes you to make the cake!).   If you buy a cake from a shop, you also have to add in the packaging costs, transport costs, marketing costs, development costs, retailer's costs (including some mark-up for shoplifting!) - and profits (and I am sure I have left some things out!)   So where do you put in mark-ups?!!!\n\nAre you looking for any particular product?\n\nIf it's any help, the Mini was made at a loss - Ford took one apart and priced all the individual components and realised it could not be made for the price it was sold at!