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BengaBenga on 16 September 2008
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NJ5 said:
BengaBenga said:
NJ5 said:
BengaBenga said:

 

Still, loans will become more expensive for them as well, so they surely will notice it.

In that respect, I think only Sony would get hurt. I don't think Microsoft or Nintendo take loans (Microsoft has huge cash reserves, Nintendo is very fiscally conservative and just doesn't spend much money).

 

Most companies take loans, irrespective of their capital, because it can be cheaper than using your own money.

 

How can that be? I've never seen Microsoft or Nintendo in debt. Sony, yes.

 

Évery company has some debt, but being in debt doesn't mean you have a negative result. Those are two different things.

That borrowing money can be cheaper than using your own capital has to do with the discount at which you invest your money. Discount being the value you generate with a certain amount of investment. A discount of 0.4 means that you'll make 40cts with every dollar you invest.

Companies don't have endless amounts of money, so they can decide to borrow money for something and use there own capital for something else at a higher discount. Sorry this is a very bad explanation, but I'm still a bit jet-lagged. I'll look up a better one.

Edit: saw your edit: no, banks don't give away money, but if you can use your own capital at a higher discount it can compensate for the rent.