Debt Versus Equity
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Suppose you are the CFO of a major corporation who is deciding in whether to issue debt or equity in order to finance the firms operations which are growing more than 15% a year, bottom line growth, in the health care field.
Which form of financing would you choose and why? What are the advantages of each?
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Solution Summary
The solution takes a look at debt versus equity in a growth scenario and explains some advantages of each.
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With 15% bottom line growth, I would issue equity to raise capital.
Debt has its advantages including the fact that interest payments create a nice tax deduction (something that would certainly be useful during these times of high profits); however, the benefits of a tax break are negated by the fact that the payments have to be made at all.
In addition, debt does not dilute ownership. Debt ...
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