Mix of Debt and Equity

6786 Words Mar 27th, 2011 28 Pages
TABLE OF CONTENT

I. ABSTRACT 1

II. INTRODUCTION 2

III. BACKGROUND 4

1. Definition of debt and equity 4 a) Definition of Debt 4 b) Definition of equity 5 2. Example of mix structure capital 5

IV. TECHNICAL SECTION 11

1. Debt Financing – Pros & Cons 11 a) Definition and Classifications of Debt Financing 11 b) Advantages of Debt Financing 14 c) Disadvantages of Debt Financing 15 2. Equity Financing – Pros & Cons 16 a) Definition & Classifications of Equity Financing 16 b) Advantages of Equity Financing 18 c) Disadvantages of Equity Financing 19 3. The mixture of Debt and Equity 20 a) Definition 20 b) Why do virtually all companies choose to finance themselves by the mixture of debt and equity? 22
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Section III, Background section, and section IV, Technical section contain the core of this report. Background section gives you the definitions of debt and equity and how to divide them into different types. This section also shows you some examples of mix structure capital which is the mixture of debt and equity. Technical section discusses in detail about debt financing and equity financing, their definitions, their sources, and how good or how bad they impact on your business. The end of this section which focuses on mixture of debt financing and equity financing makes clear the reasons why virtually all companies choose this structure to finance themselves with, the factors that affect on ratio of the mixture, and a little professional understanding about optimal level of mix structure. The last section, known as Conclusion, will summarize the key points of the report.

We do hope that you will find this report useful, and after reading it, you will have the basic knowledge about raising business capital.

III. BACKGROUND

1. Definition of debt and equity

After going through the introduction section, we know that there is a strong relation between debt and equity in business environment. And, virtually all companies finance themselves with a mixture of debt and equity in order to get profits in business progress.

In this section, we are going to clarify the definition of debt and equity, as well as the types of each one in terms
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