Business Financing and the Capital Structure Essay example

1456 Words Jan 7th, 2014 6 Pages
Assignment 2: Business Financing and the Capital Structure

Principles of Finance

Finance 100

December 12, 2013

Business Financing and the Capital Structure

Raising Business Capital As a financial advisor to this business there are two options to consider for raising business capital, equity financing and debt financing. The details, advantages, and disadvantages of both options will be provided. Also information about raising capital by selecting an investment banker will be discussed. To wrap up, the historical relationships between risk and return for common stocks versus corporate bonds will be examined.
Equity Financing In terms of equity financing it is the process of
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An investment bank can help, but the quality of a company’s opportunity and the strength of its management team determines the amount of options open for a given fundraising. Investment bankers also vary in quality, resources, experience and contacts. Investment bankers who are experienced with the company’s industry and the type of financing it needs, can often help a company raise funds. If they are unfamiliar with the company’s industry or the type of financing being sought, they may actually hinder a company’s financing efforts.
Common Stocks versus Corporate Bonds It is commonly known and accepted among investors that the higher the returns on an investment, the higher the risks are. Safe investments carry low risk, but the returns are also lower. Different levels of risk apply to common and preferred stock, as well as to corporate bonds. Corporate bonds generally have the lowest level of risk of the three investment types, but also offer lower returns, even with regular dividend payments. Common stocks have the highest risk of the investments and the highest potential returns.
Common Stocks When you purchase stock in a company during a public offering, you become a shareholder in the company. Some companies pay dividends to shareholders based on the number of

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