The Wall Street Journal (October 5, 2009) reported that analysts are worried about companies borrowing money to

Question:

The Wall Street Journal (October 5, 2009) reported that analysts are worried about companies borrowing money to pay dividends and to repurchase outstanding shares of stock. Aircraft parts manufacturer TransDigm Group borrowed $360 million to pay dividends, while Inter borrowed $1.5 billion to buy back shares of stock. These concerns of analysts are not new; in March 2007 the Wall Street Journal reported two instances of borrowings-for-dividends (Rexnord and Scotts Miracle-Gro) that sparked concerns. Companies have defended the actions, often citing historically low borrowing costs.
REQUIRED:
Discuss how the above transactions affect the basic accounting equation for the companies involved. What risks are posed when a company pursues such a strategy? What are the benefits of such a decision?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...