ACC/400 - Accounting for Decision Making
Debt versu Equity Paper
Financing is very important in todays business. There are many financing options today. The financing option that we are focusing on are debt financing and equity financing. Both financing options will be compared and contrast to determine what is a better option.
Debt financing is used by many different businesses. Debt financing occurs when a business raises money for working capital or capital expenditures by borrowing money from individuals, banks, and financial institutions, and in return for lending the money, the individuals, banks, or financial institutions become creditors and receive a guarantee that the principal and interest on the debt will be repaid (Investopedia, 2014). The money is raised by selling bonds, notes, and bills to investors. There are either short term and long term. For a short term debt financing the money is repaid in less than a year and for a long term debt financing is over a year.
For example short term debt financing the money is used for daily operation functions of the business such as supplies, payroll, and inventory. As for long term debt financing is equipment, land, buildings and bonds. With debt financing the debt and interest is repaid according to the terms of the bond, bill, or note.
Equity financing essentially refers to the sale of an ownership interest to raise funds for business purposes "dent Financing", 2014). The money is raised by selling stock to an individual. By doing so the equity investor will receive partial ownership of the business and have a say on the business decission and how it runs. Since the individual invest money in the business and becomes partial owner there is no need to pay it back. For example, an individual who invests in the...