acc_561_week_1__dq_5.docx

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acc_561_week_1__dq_5.docx

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Week 3: Debt vs Equity Financing ACC/400Susie LopezMay 20, 2013Lane GroffDebt versus Equity FinancingDebt versus equity financing is a critical element in the process of managing a business and also the most challenging decision facing managers who require capital to fund their business operations (Schroeder, Clark, & Cathey, 2005). Debt and equity are the two main sources of capital available to businesses, and each offers both advantages and disadvantages. This paper will compare and contrast lease versus purchase options, examine debt and equity financing, provide examples for each source of financing, and identify which alternative capital structure is more advantageous. Lease vs. Purchase Options: Compare and ContrastIn business the decision to lease or purchase is a critical element of strategic management. Equally important is the way in which the asset will be used. Operating leases are most often used by organizations looking for fixed payments with no long-term risk, and a limited useful life of the asset. Capital leases are more aligned with the features of a conventional purchase.Purchasing often requires a higher monetary expenditure at the start, in addition to acquiring the financing to purchase through a lender. Leasing usually requires a lesser amount of cash down and the monthly payments are often smaller. Additionally,leasing offers tax benefits because the full lease payment can be immediately deducted, whereas purchasing only

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