Share
Explore BrainMass

Internal versus external equity financing

What factors influence a company's decision of internal versus external equity financing?

Solution Preview

The major sources of financing capital expenditure are:
1) Debt
2) Equity
3) Preference shares
A firm's long-term success depends upon the firm's investments earning a sufficient rate of return. This sufficient or minimum rate of return necessary for a firm to succeed is called the cost of capital. The cost of capital can also be viewed as the minimum rate of return required keeping investors satisfied.
Thus the objective of the capital structure management is that mixture of debt and equity than minimizes its weighted average cost of capital (WACC). It has to optimally utilize the sources of finances which ...

Solution Summary

This solution explains what factors influence a company's decision of internal versus external equity financing.

$2.19