Explore BrainMass

Advantages and Disadvantages of Cost of Capital

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Assume that you are the CEO of a medium size company in the U.S. Your company is contemplating raising capital by selling debt securities and equity securities. Discuss the advantages and disadvantages if any associated with this plan.

© BrainMass Inc. brainmass.com October 24, 2018, 11:51 pm ad1c9bdddf

Solution Preview

- Because the lender does not have a claim to equity in the business, debt does not dilute the owner's ownership interest in the company.
- A lender is entitled only to repayment of the agreed-upon principal of the loan plus interest, and has no direct claim on future profits of the business. If the company is successful, the owners reap a larger portion of the rewards than they would if they had sold stock in the company to investors in order to finance the growth.
- Except in the case of variable rate loans, principal and ...

Solution Summary

The solution answers the question below and goes into quite a bit of detail regarding the Cost of Capital. The answer is ideal for students looking for a detailed analysis of the question asked below. An excellent response to the question being asked.

See Also This Related BrainMass Solution

Advantages and disadvantages of various valuation methods

Describe the advantages and disadvantages of these 3 valuation methods: 1) the Discounted Cash Flow method (fundamental method) 2) the Venture Capital Method and 3) the First Chicago Method. In answering the question, assume that you plan to value a startup.

response is 1,236 words plus references

View Full Posting Details