Question

compare and contrast the advantages and disadvantages of "equity financing" (selling stocks) vs. "bond financing" (selling bonds) for corporations.

Answer 1

Advantages of equity financing:-

1. All the risk is borne by investors.

2. Other benefits can also be obtained like access to Key business contacts

Disadvantage if equity financing:-

1. Ownership and control over company is shared with investors.

2. It is very difficult to find the right investors.

Bond financing

Advantages:-

1.Full ownership over company is retained.

2. No further obligations once amount is repaid.

3. Interest paid is tax deductible

Disadvantages:-

1. Regular outflow of amount due is required.

2. It is difficult to grow since massive amount of profit is used to repay debt.

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