Introduction to Entrepreneurship course final exam Q&A

Introduction to Entrepreneurship Course Final Exam Q&A
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Introduction to Entrepreneurship Course Final Exam Q&A
Question: 1 (a) What is Equity
Equity is the owner’s interest in their business or personal assets. An example of the owner’s interest in the case of a business stockholders’ equity. It also refers to the ownership of assets after all the liabilities associated with it are paid off. In large business organizations, equity may refer to the interest or value of the most junior group of investors or shareholders in assets (Scarborough & Cornwall, 2019). It is also the sum of money or shares that a stakeholder or an investor holds or owns in a corporation that entitles them to a fraction of that company’s profits, also referred to as dividend and a certain degree of control in the form of shareholder’s rights to vote. The two types of equity are negative and positive equity. Negative equity occurs when an individual or organization’s liabilities exceed their assets while a firm or an individual has positive equity when their assets exceed their liability.
Positive and Negative Attributes of Equity
Equity is less risky. The borrower faces a risk when using equity financing because this method does not require one to make fixed monthly loan payments. Secondly, equity financing is usually the only choice for individuals and corporates that have credit problems. Thirdly, equity funding does not usually take their premiums from the business (Woodruff & Thompson, 2019). The repayment of the debt loan, unlike equity financing, takes money out of the cash flow of the business; this reduces the money that a company needs to invest and finance its growth. Equity financing also has room for long-term planning. Investors in equity financing do not expect immediate returns on their capital investment. This gives the borrower the time to reinvest their shares and earn extra income.
On the contrary, equity is relatively costly to the business. Equity investors usually expect that a business will trade in their investments and give back dividends according to their shares. Therefore, owners of the company must always be ready to share part of the firm’s profit with their shareholders irrespective of the profit earned (Woodruff & Thompson, 2019). Secondly, equity makes the owner of business lose and share the control of their company once they accept shares and investments from shareholders. Usually, investors would want to take part and be consulted whenever a company wishes to make major decisions in order to safeguard their investments.
What is Debt?
Debt is the sum of money that an individual, business, or government borrows from another person or organization. Many people and corporations use debts to make large purchases which they could otherwise, not afford under normal conditions (Scarborough & Cornwall, 2019). The arrangement of debts is such that it grants the borrower the right to borrow money or assets from the lender under specified conditions that it will pay the debt within an agreed period, usually at an interest.
Positive and Negative Attributes of Debt
One of the advantages o...