Is debt easier to price compared to equities? Discuss using your knowledge in business finance.

Expert Solution

Ans ) Debt vs Equity decisions

	High	low
Flotation cost	issue debt	issue equity
Interest rates	issue equity	issue debt
Tax rate	issue equity	issue debt
Earnings volatility	issue equity	issue debt
Business growth	issue equity	issue debt
% debt in capital structure	issue equity	issue debt

Conditions. Debt. Equity

Management influence	None . unless there were especially agreed condition	common stock holder's have voting right
Repayment	Debt has maturity date	Stock has no maturity date
Yearly obligation	Payment on interest	Not legally liable to pay dividend
Tax benefits	interest is tax deductible	dividend are not tax deductible .

On an average we can say that debt are cheaper than equity because it is tax deductible .one can decide the appropriate rate if interest in comparison to equity because risk perception of equity change with time or with more use of Debt.

Inshort both have pron and cons one must take care there advantages and disadvantages while framing capital structure.

?????? thanks keep smiling keep learning

jeff jeffy answered 1 year ago

5. Discuss the role of debt finance and equity finance from the business side, and the...

5. Discuss the role of debt finance and equity finance from the business side, and the financial investor’s (saver’s) side. Considering our discussions over the past several weeks with respect to credit, saving, investment, and crowding out, discuss the implications of each for the long term stability for the economy and for the business. *Refer Macroeconomics by Gregory Mankiw. 10th edition; please explain the complete answer in a detailed way

In your initial post, please discuss (using examples as appropriate) if you feel it is easier...

In your initial post, please discuss (using examples as appropriate) if you feel it is easier to manipulate short-term or long-term accruals.

What are the benefits and detriments of using debt as a source of funds when compared...

What are the benefits and detriments of using debt as a source of funds when compared to issuing common stock?

Using your knowledge of the business environment and relevant examples, explain some ways in which conducting...

Using your knowledge of the business environment and relevant examples, explain some ways in which conducting business in Canada maybe different from conducting business in South Sudan.

Discuss a relationship between two quantities associated with your major (business finance). Include your major and...

Discuss a relationship between two quantities associated with your major (business finance). Include your major and describe the relationship 1) in words, 2) graphically, 3) and as an equation. Define the terms in the equation, and properly label the graph and all terms related to it.

Polly is hoping to finance her business using crowdfunding. Discuss Polly’s decision to use crowdfunding as...

Polly is hoping to finance her business using crowdfunding. Discuss Polly’s decision to use crowdfunding as a source of finance

Using your knowledge of the main types of non-covalent interactions that occur in biological chemistry, discuss...

Using your knowledge of the main types of non-covalent interactions that occur in biological chemistry, discuss the spontaneous assembly of the four main types of biological structure with stable structures: DNA, proteins, glycans (such as cellulose and chitin) and cell membranes. Compare and contrast the various structures in terms of the forces and chemical structures driving their assembly. Finally, discuss why their particular molecular structures allow them to perform their biological roles.

The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in the...

The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in the Financial Growth Cycle by Allen N. Berger and Gregory F. Udell Synopsis The article, The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in the Financial Growth Cycle by Allen N. Berger and Gregory F. Udell, discuss the economics of small business financing in private and debt markets. The article shows the sources of small business finance and how...

What is finance? Briefly discuss how the study of finance is essential to business today. There...

What is finance? Briefly discuss how the study of finance is essential to business today. There are other areas of business, such as marketing, human resources, and management. How does finance impact them? In other words, can a business efficiently run without everyone having some knowledge of the field? Explain.

Debate the advantages and drawbacks of using debt financing compared to equity financing to meet the...

Debate the advantages and drawbacks of using debt financing compared to equity financing to meet the financial needs of a start-up. Choose at least two examples of each type to compare and contrast.

Question