On the Matter of Parity among Financial Obligations
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- Author(s): WILBUR G. LEWELLEN, DOUGLAS R. EMERY
- Published: Apr 30, 2012
- Pages: 97-111
- DOI: 10.1111/j.1540-6261.1981.tb03537.x
The lessons of the leasing literature concerning the impact of leases on the debt capacity of a firm are reviewed and summarized to establish an approach to the analysis of the corporate bond refunding decision. A general proposition regarding financial obligation parity is established, and from that a clear bond refunding decision rule is developed. Previous debates in the literature about appropriate discount rates and about the appropriate cash flows to be discounted for refunding decisions are clarified.