What are some factors that financial managers consider when choosing the maturity structure of their debt?

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What are some factors that financial managers consider when choosing the maturity structure of their debt?

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What are some factors that financial managers consider when choosing the maturity structure of their debt?

Explanation & AnswerSolution by a verified expert

Explanation

Factors for managing maturity structure of debt are:

Amount required- The amount needed by the company also affects financing decisions as if a small amount of funds is needed that a term loan will be borrowed.
Effects of interest rate- If interest rate is expected to decrease in the future then the managers will issue long-term debt and if the interest rate is expected to increase that the managers will renew their short-term debt.
Asymmetric information- Information available will affect the choice of maturity structure of debt as if investors are expecting high earnings then issuing debt will be expensive as interest rate will be high.
Availability of collateral- For securing funds for the market it is important to see that the firm has enough assets to be kept as collateral.

Verified Answer

Following are the factors which are to be considered for managing maturity structure of debt:

Amount required
Effects of interest rate
Asymmetric information
Availability of collateral

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