1 page/≈275 words
Business & Marketing
CORPORATE FINANCE (Essay Sample)
Aside from taxes, another important difference between debt and equity financing is that debt payments must be made to avoid default, while firms have no similar obligation to pay dividends. How do debt and equity financing affect a firm's tax situation differently? Why do debt payments have to be made but dividends do not have to be paid? source..
Running head: CORPORATE FINANCE Debt vs. Equity Financing Name: Institution: Course: Tutor: Date: Debt vs. Equity Financing Debt and equity are the two major methods of financing a business. A firm may decide to borrow funds from external lenders or it may decide to obtain funds from the owners of the business or by issuing shares. Debt finance is the external source while business financing from owners of the business is termed as equity financing. Each of these sources has its own pros and cons. Debt equity is preferred because it is believed to increase the value of the firm. This is because interest on debt finance is tax deductible. Therefore, ...
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