28 Oct following discussion topic
WHAT WOULD YOU DO?
Please respond to the following discussion topic. Your initial post should be a minimum of 150 words in length. Then, make at least two thoughtful responses to your fellow students’ posts. Do not write in 3rd person!
If you owned your own company and wanted to expand, would you choose to get your financing through debt, equity, or both? Why? What advantages or disadvantages do each offer?
LuGene Ryan
If I were to expand my existing company, I would choose a mix of debt and equity as a certain amount of debt, but not more, is important for leverage in the business. Debt capital is easy to access and therefore lets the owners take advantage of business opportunities. Also, interest on debt is tax deductible thereby lowering the cost of debt capital. some amount of debt also helps in lowering the overall cost of capital of the firm. On the other hand, too much debt is not good for any business as debt needs to be serviced and repaid on time regardless of the profitability and cash position of the business. Equity capital need not be repaid nor are dividends to be mandatorily paid on equity capital hence providing the flexibility that doesn’t come with debt. Both have their pros and cons hence a mix of both is perfect for the business.
Lynwood Owens
Class,
after some research about equity and debt. I would much rather have a controlled debt. I can still maintain ownership and have the freedom to control my investments. I do not have to put up any other collateral in reference to profits, company ownership, or my company decision making. Although, I would gain some benefits from having debt. My monthly payments are set with the appropriate principle added with interest added. Once I’ve made my last payment, I’m no longer in debt , and can use my company’s addition to make more profit. My tax deductions would be more advantageous when it come to filing for taxes. Also I would have limited obligation to a particular loan. I will have the freedom of having future planning if I wanted to expand or start a new site. The down side of debt is having to pay it back with set and timed payments. That will be determined if your company have a good credit reputation. Restricted cash flow will/can be an issue due to the monthly income of your business. You have to budget and know your financial priorities.
Equity on the other hand, has some advantage points, opposed to having debt. There is little or no overhead on loan repayment that has interest. You can better focus on your finance while keep a closer eye on your organization. Your credit can have an opportunity to remain private because lenders have to research it to determine if your loan request is valid enough for repayment. The down side lenders and investor will require your share as collateral, plus a higher rate of return is expected from the shareholder, and sharing the control of your company.
I would rather have a controlled debt, based on my stability and commitment
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