Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 381

Design the perfect financing instrument

! The perfect financing instrument will

• Have all of the tax advantages of debt


• While preserving the flexibility offered by equity

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  Design debt to have cash flows that match up to cash flows on the assets financed

There is ample scope for creativity in trying to design the perfect bond. The idea

is to design debt that looks and acts like equity, in terms of the cash flows.