Question is at bottom below instructions. 750 POINTS Please do NOT post copy and

Question

Question is at bottom below instructions.

750 POINTS

Please do NOT post copy and paste material from a website. 1 Star will be given for that.

Do not copy from wikipedia either please.

5 Stars for an answer in your own words and a source included if you copied a little bit from somewhere on the internet.

Answer only needs to be a short paragraph.

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When investing in IT an organization is making a long-term financing decision. The organization can use debt or equity financing. Discuss the challenges of each. Also, what are the tradeoffs between the two?

Explanation / Answer

Equity financing

Having an investor write you a check may seem like the perfect answer if you want to expand your business but don't want to take on debt. After all, it's money without the hassle of repayment or interest. But the dollars come with huge strings attached: You must share the profits with the venture capitalist or angel investor.

Advantages to equity financing:

Disadvantages to equity financing:

The business relationship with a bank that loans you money is very different from a loan from an investor -- and requires no need to give up a part of your company. But if you take on too much debt, it's a move that can stifle growth.

Advantages to debt financing:

Disadvantages to debt financing:

Most businesses opt for a blend of both equity and debt financing to meet their needs when expanding a business. The two forms of financing together can work well to reduce the downsides of each. The right ratio will vary according to your type of business, cash flow, profits and the amount of money you need to expand your business.

There is only a certain amount of money you need for a particular project. Usually the only money you can get is debt financing and equity financing, so if you get more equity financing, you don't need so much debt financing, and vice versa

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