Evaluation Of Debt And Equity Funding - 1006 Words

Evaluation of Debt and Equity Funding The way the business is funded for its operation and business plans is a crucial factor for the long-term performance of the business. Two most fundamental financing methods include debt and equity financing which will be discussed and evaluated. Equity financing is a method of raising fund from investors with the promise of a share in business ownership. Debt financing is obtaining a loan from external party separate from the business for example the bank and usually involves incurring an interest payment. Advantages of debt financing include protection of ownership and tax reduction. Lenders have no claim on business ownership and debt financing ensure retained ownership. Another benefit includes tax reduction, the repayment of debt is considered as an expense for the business leading to a reduction in tax. Disadvantages include the repayment and lender claim on business asset. For debt financing there is a fixed repayment date, while equity financing does not require repayment. E ven when the company is making a loss, the business needs to make debt repayment regularly for example in a monthly basis to lender such as bank. Usually when business default its debt, the lender can claim its assets as collateral. Interest rate is an integral part of debt financing. Due to inflation, the value of the same amount of money diminish overtime as a result, there is an interest rate for all loan. Long-term loan is comparatively more costly thanShow MoreRelatedEvaluation Of Debt And Equity Funding898 Words   |  4 Pages Evaluation of Debt and Equity Funding Debt funding provides the business with finance from current and non-current liabilities, such as a short-term bank overdraft and loans. Particularly, debt financing is from external sources and it usually charges interest. Conversely, equity funding is an internal source that refers to the contributions by owners or shares purchased by shareholders (Battistutta and Duncan 1997). Since both debt and equity funding have pros and cons, the business may be financedRead MoreEvaluation Of Debt And Equity Funding1177 Words   |  5 PagesEvaluation of Debt and Equity Funding There are two ways for a company to raise funds: debt financing and equity financing. Debt financing Debt financing is a way of raising capital by ‘selling bonds, bills, or notes to individual or institutional investors with a promise of repaying principal and interest on the debt’ (Investopedia 2015a). One of the greatest advantages of debt financing is that the debtor has full control of the borrowed capital and does not need to relinquish any ownership ofRead MoreDebt vs Equity Financing1295 Words   |  6 PagesMidterm Project FIN 4873 Debt vs. Equity Financing Your consulting team has been to hired evaluate the financing of a new project. The company wants to fund the project with either debt by borrowing the money or equity by selling additional common stock. The company does not want a combination of debt and equity financing, nor do they want any exotic financing such as convertibles, debentures, warrants or bonds. It’s simply debt versus equity. The company’s CFO (me) and Board of DirectorsRead MoreHealthy Potion : An Effective Strategy For New Business Development1508 Words   |  7 Pagesnamed Healthy Potion, and is currently aiming to diversify its product line in order to limit it’s exposure to risk. To implement its strategic development plan, the business requires $200 000, and is contemplating between whether to utilise debt or equity funding. This report will provide a comprehensive strategic analysis of Healthy Potion and propose an effective strategy for new business development. 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