DQ 1: INVESTMENTS Investments can provide income, growth, and liquidity. Which factor is more important to...

DQ 1: INVESTMENTS

Investments can provide income, growth, and liquidity. Which factor is more important to you personally? Why?

DQ 3: TYPES OF FINANCING

Compare the relative costs of using long-term equity financing and those of using long-term debt financing. Hint: What is the "cost" associated with debt financing? Are you only obligated to pay back the borrowed amount? What does a company "give up" when they use equity financing?

Solutions

Expert Solution

D1. Investment can provide income, growth and liquidity because investment are made in various market exposure and conditions so they are providing income in the form of capital gain and dividend yield whereas they are also providing growth in form of capital appreciation.

liquidity another factor of investment because liquidity will mean that the investment is realised quickly as and when required by the investor.

for me, growth is important because I am a long term investor and I will always be trying to gain through capital appreciation

D3.cost of long term equity financing is relatively considered higher than the cost of debt financing because debt financing will always be having a tax deduction on the overall interest payments whereas the dividend payments & the capital gain payments are not deductible on the part of the company So, company will be finding it higher than the debt capital.

when there is a high rate of return of capital then the overall cost of debt then company will be trying to incorporate a large amount of debt capital into the overall capital structure, whereas, when there is a high amount of cost of capital then the return of debt, then company will trying to incorporate a lesser amount of debt capital because that will also have a risk of insolvency.

jeff jeffy answered 1 year ago

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