Forms of Financing Debt and Equity

This step involves short and long term debt equity analysis. The proportion of equity capital depends on the possessing and additional funds will be raised. The choice of the source of funds the company has are the issue of shares and debentures, loans to be taken from banks and financial institutions and public deposits to be drawn in form of bonds. The choice will depend on relative merits and demerits of each source and period of financing. The management of the investment funds is key in allocating that the funds are going in the correct place. The profits that are made can be down in two ways dividend declaration which includes identifying the rate of dividends and retained profits in which the volume has to be decided which will depend upon expansion and diversification of the company. The management of cash is another important function. Cash is needed for all different aspects of the company such as payment of salaries, overhead and bills. All of these are important in a company and how successful the financial aspect is going to be.The financial management practices include capital structure decision, investment appraisal techniques, dividend policy, working capital management and financial performance assessment. A company needs to have well financial in order to be successful. “A company that sells well but has poor financial management can fail.” (Johnston)

In general, using external funds, i.e. debt or equity, to finance increasing growth is riskier to the corporation. When issuing debt the company needs to be certain to cover both the repayment of the principal and the interest payments on time (because if they do not this could cause them to have problems securing financing in the future). When issuing additional shares of stock (equity) the value of existing traded stock is diluted (in proportion) and as such the current ownership might lose control (and may even be voted out by shareholders if dilution is substantial enough). Furthermore, with both debt and equity financing, a fast growing company needs to be aware that payments to either may hamper future expansion because payments that need to be send out in the forms of dividends or interest cannot be retained and invested in future projects.

The company position is strong enough so its better that company should use debt financing instead of equity financing.

This project’s initial outlay includes the necessary capital needed to purchase fixed assets and ensure they are in operating order to start the project.

I get the NPV of the cost of financing, from which I can see that among all the financing options considered, Debt (with no principal repayments) has the lowest NPV cost whereas Equity has the highest NPV cost.

The amount required by the company is $1 million; either using debt or equity or both equity and debt should be used for raising the required amount. Before making any decision about capital structure, both pros and cons of each method of financing have to be analyzed.

The team shared the importance of having a good bank to raise the capital. It is also important to know the time frame to pay off the amount, pay schedule and having a good plan to pay off the amount on time is crucial. The question about buying things, owning things, renting things and leasing things- all depends on whether the business

To start the paper we will focus on the stock market and how it works. Companies have two ways that they can obtain money, it can either sell stock or borrow money. Equity financing is when a company sell shares to a person who buys into the stock to gain part of ownership in the company. By selling the stock the company doesn’t have to pay interest to anyone and it is a lesser risk because you are splitting the risk with anyone who buys the stocks. If the company doesn’t end up being able to make a stable profit and is forced to close down, the original owners don’t lose all their money, but rather they lose a little bit of everyone’s money. The downside of selling stocks is you don’t fully own your company outright. Debt financing is if you decide to borrow money, you would have to take out a loan that would require you to pay interest as you progressively pay back the loan. This will put more risk into your hands as well, if the business

|Purpose: |This is a long form annotated Venture Capital Term Sheet, proposing deal terms for investment by a venture |

Assume you have just been hired as a business manager of PizzaPalace, a regional pizza restaurant chain. The company’s EBIT was $50 million last year and is not expected to grow. The firm is currently financed with all equity and it has 10 million shares outstanding. When you took your corporate finance course, your instructor stated that most firms’ owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated

Gonzales food stores, a family owned grocery store chain headquartered in El Paso, is considering a major expansion. They have asked me to research the process and to help them decide exactly how to raise the needed capital. During my research I found the financing with stock offers several advantages over debt, however there are disadvantages as well. One of the main advantage is that common stock will not require them to make fixed payments. Gonzales’s directors have a choice to pay dividends if returns are adequate. Common stock never matures and don’t have to be repaid. Common Stock will lower Gonzales’s debt to income ratio, this will allow Gonzales to have some wiggle room for expanding.

Last but not least, we look at the balance sheet. We have to show our current ratio and our debt ratio. The debt ratio says it all, it shows just how much our Corporation is currently in debt, and can also show this companies long term solvency. “The current ratio is an excellent diagnostic tool as it measures whether or not your business has enough resources to pay its bills over the next 12 months” (Ward, n.d.). If we don’t have enough money to pay our bills, then what is the point in these companies investing and financing with us? They would get nothing out of it.

There is no universal theory of the debt-equity choice, and no reason to expect one. In this essay I will critically assess the Pecking Order Theory of capital structure with reference and comparison of publicly listed companies. The pecking order theory says that the firm will borrow, rather than issuing equity, when internal cash flow is not sufficient to fund capital expenditures. This theory explains why firms prefer internal rather than external financing which is due to adverse selection, asymmetry of information, and agency costs (Frank & Goyal, 2003). The trade-off theory comes from the pecking order theory it is an unintentional outcome of companies following the pecking-order theory. This explains that firms strive to achieve an

* We estimated the initial cash outlay to be $835,000. This represents the initial investment your company has to make to undertake this project.

The disadvantages of the equity tool for the financing of real estate ventures consist on forming partnerships or corporations; this means that institutional investors are willing to fund the venture in the form of equity, therefore, becoming shareholders (lost of control). This tool becomes attractive when small private investors