Question

Foundations of Financial Management: sources of funding for corporations

Answer 1

Sources of funding for corporations:
1. Retained Earnings: The corporations can use retained earnings as cost of administration and large risk is not involved in using retained earnings.
2. Debt Funding: Corporation can issue bonds . The cost of debt funding is less because interests are tax deductible. However it increases the risk in the business even though overall cost of capital decreases.
3. Equity financing: Funds can be raised through issue of shares . The cost of fund through equity is very high. Even though it is not that risky the cost of capital increases.
4. Private placement : Funds can be obtained by providing shares or partnership to another entity in leu of capital.