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Your company's CEO just learned that: Equity can be used as a financing option. Why might...

Your company's CEO just learned that: Equity can be used as a financing option. Why might she or he want to increase the riskiness of the company? Why might other stakeholders be unhappy about this?

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Answer #1

This is correct capital can be raised by equity .

She might increase equity because in case of raising debt for capital, there are debt interest payments, regular debt repayments and other bankruptcy costs comes . which is not the case in case of equity raising .

Other shareholders will not be interestebecause CEO will be diluting their ownership means as you raise equity, you need to give some proportional ownership to the new equity holder . so ownership and control of present shareholder's decrese . this isn't the case with debt financing .

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