.....debt and equity has a number of different implications, including some significant tax implications. Debt is repaid from earnings prior to taxation, where equity payouts typically occur on an after-tax basis. This is because debt repayments take priority over the payment of dividends or even to stock buybacks or retained earnings. Debt capital is thus repaid before the company is taxed -- debt lowers taxable income. Thus, debt will also

Debt and Credit Financing While there are general rules that each company can rely on to help it determine the best strategies for determining how to finance its short-term and long-term goals. However, as this analysis shows, each company must make financing decisions based on its specific needs and market position. Companies exist to make money. However, in order to be able to create the products or services with which they can

Debt vs. equity financing As its name implies, debt financing involves borrowing money from a bank, individual, or company, with a promise to pay back the principle with interest. Any organization can make use of debt financing, spanning from a small single proprietorship to a large multinational. The owner of the business retains control over the organization and the only responsibility he or she has to the lender is to make

Debt financing tends to have a lower cost than equity financing and is often easier to acquire. However, because debt financing represents a fixed obligation in terms of interest and repayment, it increases the risk of the firm. Thus, some amount of equity financing is ideal with respect to keeping the firm's risk level within reason. The level of risk a firm should have will vary depending on a number

When the economy suddenly has more money circulating around there is the threat of inflation. "The Federal Reserve is expected to hold its main short-term interest rate at a 45-year low of 1% at its last meeting of the year in December, as well as into part of 2004, economists predict. Holding short-term rates at such low levels might motivate consumers and businesses to spend and invest more, something that

A third financing option is preference shares, one of whose principal qualitative advantages is no diminution management's interest in corporate growth or voting power (assuming that non-voting preferred stock issued). Also, any new equity sale requires the company to offer shares to preferred stockholders first to maintain their pro rata interest. This limits the flexibility to bring in new shareholders to influence operation systems. Meanwhile, preferred stock is always subject