Discuss pros and cons of using debt financing versus equity financing. Support your answer with real world examples and/or theoretical framework from the assigned readings. Also, discuss whether or not, all else equal, firms with relatively volatile sales are able to carry relatively high debt ratios. Provide an example of a company with relatively volatile sales.
When financing a company with debt, the interest expense is the cost that company pays on its debt. With equity, the cost refers to the claim on earnings provided to shareholders in proportion to their stake in the company.
For example: if you run a small business and need $60,000, you can either take out a $60,000 bank loan at a 10% interest rate which is debt financing or you can sell a 30% stake in your business to your friend for $60,000 which is equity financing
Suppose your business earns a $30,000 profit during the next year. If you took the bank loan, your interest expense would be $6,000, leaving you with $24,000 in profit. Also, interest expense is tax deductible, you would earn because of this tax shield.
Whereas, if you used equity financing, you would have zero debt, but would keep only 70% of your profit (the other 30% being owned by friend). Therefor, your personal profit would only be $21,000, or (70% x $30,000).
In example above we can see debt financing is coming out to be cheaper than equity financing but if instead of selling stake of 30% you only sell 10% stake to your friend then equity will be more cheap then debt financing.
Therefore, to get the most profits one should use the
combination of bothe debt and equity depending on the cost of
capital.
Discuss pros and cons of using debt financing versus equity financing. Support your answer with real...
1) major benefits of using debt financing for companies; 2) reasons why firms in some industries rely more heavily on debt financing (banks, automakers) versus firms in other sectors (high-tech, pharmaceuticals). Support your answer with real world examples and/or theoretical framework from the assigned readings.
Discuss pros and cons of debt financing in contrast to equity financing in capital budgeting. What are the implications of each for shareholders’ wealth maximization?
Discuss the nature, and pros and cons, of creative accounting, using examples to support your arguments. and address the point of view that ‘creative accounting is an essential part of accounting innovation and the response to change and developing exigencies
Two common forms of financing include debt and equity. Explain these financing options by defining them in your own words, discussing when each would be most appropriate, and providing an example that illustrates when each method might be preferred over the other. In replies to peers, discuss whether you support the definitions and examples provided using the topic materials.
9. If the stable developers such as HRI have a total debt-to-total assets ratio in the range of 48-55 percent, how much flexibility for future financing will HRI have if is issued at present? Case 31 The Debt versus Equity Financing Alternative High Rock Industries Kathleen Crawford, president and CEO of High Rock Industries, reflected upon the company's growth since its inception in 1975. That growth, indicative of the activity in land development in the mid-Atlantic region of the United...
Respond to the following prompt with your original thoughts, at least 200 words, utilize academic sources to support your point. Is the WACC an estimation of the real cost of capital(explicit cost of money) or an opportunity cost tied to a particular decision based on market required returns? You use the following points to discuss this question or utilize your own points. 1. Projects of different levels of risk should have different associated discount rates. 2. The WACC reflects the...
I need Summary of this Paper i dont need long summary i need What methodology they used , what is the purpose of this paper and some conclusions and contributes of this paper. I need this for my Finishing Project so i need this ASAP please ( IN 1-2-3 HOURS PLEASE !!!) SPECIAL ARTICLES tole of Monetary Policy C Rangarajan What should be the objectives of monetary policy? Does the objective of price stability conflict with the goal of achieving...
1.- Based on the below reading, using Critical Analysis, based on the concepts of text, comment, and answer What can we learn from the great business leaders? WHAT CAN WE LEARN FROM GREAT BUSINESS LEADERS? 2.- Depending on the below reading assigned, using Critical Analysis, based on the concepts of reading, comment on your optics regarding the last three paragraphs of the reading conclusions. WHAT CAN WE LEARN FROM THE BIG BUSINESS LEADERS? William Henry “Bill” Gates III was born...
Read the Article posted below, then answer the following questions: 1. As a junior member of your company’s committee to explore new markets, you have received a memo from the chairperson telling you to be prepared at the next meeting to discuss key questions that need to be addressed if the company decides to look further into the possibility of marketing to the BOP segment. The ultimate goal of this meeting will be to establish a set of general guidelines...
Read the Article posted below, then answer the following questions: Mergers & acquisitions are a major form of corporate diversification strategy, identify and discuss the top three reasons why most (50-60%) of acquisitions fail to create shareholder value. What are the five major components of “CEMEX Way” and why has this approach been so successful in post-acquisition integration? In your opinion, what can other companies learn from the “CEMEX Way” as a benchmark for acquisition management? Article: CEMEX: Globalization "The...