ADMS 3530 Study Guide - Quiz Guide: Human Capital, With-Profits Policy, Income Approach

• School: York University
• Department: Administrative Studies
• Course: ADMS 3530
• Professor: King Lois

Document Summary

Debt capacity = amount of debt that can reasonably be able to repay under the terms of the loan agreement, given current & expected future financial situations. {(i) how much debt can a person take, (ii) is there an optimal level of debt a person can take, (iii) what factors affect this optimal level, (iv) how can someone manage their credit & debt effectively} ^le(cid:374)de(cid:396) is i(cid:374)te(cid:396)ested i(cid:374) (cid:271)o(cid:396)(cid:396)o(cid:449)e(cid:396)s(cid:859) sho(cid:396)t & lo(cid:374)g (cid:396)u(cid:374) a(cid:271)ilit(cid:455) to pa(cid:455) i(cid:374)te(cid:396)est & principal. Higher the expected net assets & cf = higher the debt capacity. Sources of variability of cf (the risk); pay cut, unemployment, business failure, disability/bad health. Budget of income & expenditure is useful to assess debt capacity. Banks use; gross debt service ratio (gds)< 30% & total debt service ratio (tds)< Match principle in finance = match the expected economic life of an asset to the term of maturity of the financing.