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Which of the following is a major difference between debt financing and equity financing?
phoebe.lou
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Which of the following is a major difference between debt financing and equity financing?
Which of the following is a major difference between debt financing and equity financing?
▸ Equity financing has a specific maturity period, whereas debt financing usually has no specific maturity period.
▸ Repayment of debt financing is not linked to organizational performance, unlike equity financing.
▸ Equity holders have primary claims on assets unlike debt financiers.
▸ Payments to equity holders reduce taxable income, whereas debt payments are not tax deductible.
▸ Debt financing is used to cover long-term expenses, whereas equity financing is used for current expenses.
Textbook
Business in Action
Edition:
9
th
Authors:
Bovee, Thill
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Repayment of debt financing is not linked to organizational performance, unlike equity financing.
The cost of debt financing is usually a recurring cost and usually fixed. Debt obligations must be repaid, regardless of whether the company is profitable or not. Based on management's discretion and if a company is profitable, shareholders may receive dividends after creditors have been paid. However, a company is not required to pay dividends.
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Using debt financing to replace equity financing always leads to greater EPS for the firm.
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Compare and contrast debt financing and equity financing.
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phoebe.lou
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I appreciate what you did here, answered it right
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