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 9, 2019, 10:05 pm ad1c9bdddf
ADVANTAGES OF DEBT COMPARED TO EQUITY
- 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 ...
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.