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There are many approaches a corporation or company can use to raise capital. Based on the resources for this module, explain how a company can raise capital through the issuance of equities. Include t...

There are many approaches a corporation or company can use to raise capital. Based on the resources for this module, explain how a company can raise capital through the issuance of equities. Include the advantages and disadvantages of the methodology.

Please explain advantages and disadvantages.

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Answer #1

Company can raise capital by issuing shares to investors. Investors pay money and this money flows back into the company for its use.

Advantages:

1) Equity is considered more stable form of financing (no pressing need to repay fixed payments unlike debt). Thereby it helps long term stability of the firm

Disadvantages:

1) Dilutes shareholding of existing investors

2) Involves significant transaction costs (issuing equity - IPO, or follow on offers)

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