The calculation of after-tax cost of debt plays a role in managing capital costs. You have been asked to present a few matters related to Debt (Bond) financing to the Board of Directors.Briefly explain to the Board;
1) the usual collateral position of Bondholders (Lenders) versus Equity investors,
2) why common stockholders can demand a higher rate of return than lenders, and 3) why you would suggest debt (or equity) financing.