Description
Party A graduated from business school and has learned the details about running a successful business. He is ready to utilize his education and does not want to work for anyone. Party A had decided to sell the fifty thousand rulers that his uncle gave him. He knows that he will have to purchase additional supplies.
You are his business advisor, and he wants to know how he can raise the money to finance his business and if he should take out a loan.
Discuss the two main ways that corporations are financed.
Explanation & Answer
View attached explanation and answer. Let me know if you have any questions.
As Party A's business advisor, it is important to discuss the two main ways corporations are
financed, which are debt financing and equity financing. Understanding the pros and cons of
each financing option can help Party A make informed decisions about how to raise the money
he needs to start and grow his business.
Debt financing, it is form of loan and it means that borrowing money from the lenders and banks,
in exchange for a promise to repay the loan with interest. This is a common way for businesses
to finance their operations and can be accomplished through loans or bonds. The advantage of
debt financing is that it allows businesses to access capital quickly and without giving up
ownership or control. Additionally, interest payments on debt are tax deductible, which can
reduce a company's overall tax bill.
However, there are also several disadvantages to debt financing. One is that the business must
repay the loan, including interest, regardless of whether the business is profitable. This can be
challenging for new businesses that are still trying to establish themselves in the market.
Additionally, lenders may place restrictions on how the business is run, such as requiring regular
financial reporting or limiting ...
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