Debt

The Debt Decision screen is used take out loans to raise cash by increasing your level of long-term debt. Loans are used to raise additional capital (cash) to finance expenditure (such as product development or marketing campaigns). Alternatively, this can be achieved through a new share issue (equity). A firm needs to decide what proportion (and/or type) of debt and equity to use when financing its business projects.

Either choose "Raise" or "Repay" in the debt decision screen, depending on whether you want to increase or decrease your amount of long-term debt. As you adjust the level of debt you are raising/repaying, you will see the following figures in the decision screen change:

• Total Debt

This is the total amount of debt your firm owes to the bank.

• D/E Ratio

This is your firm's debt to equity ratio. The D/E ratio is included in the share price calculation and has a measure of risk. The higher the DE ratio, then the higher the relative debt levels of the firm and the higher a risk it is to investors so the less value a share has.

• Interest Rate

This is the annual interest rate the bank will charge your firm for the loan.

• Annual Interest

This is the amount of interest you can expect to pay the bank after a year of trading.