Question

Companies raise capital in two main forms:

Answer 1

Answer: The answer is a

Explanation:

Equity : This is the ownership claim to the resources of the firm. In equity financing funds are raised either by initial capital contribution by owners or by additional capital contribution by existing and new owners for example the sale of shares to shareholders or by reinvesting profit earned by the business. Where an existing business is being financed by equity involving funds from new investors, it means that the original owners of the business will have to share the ownership, risk and profit of the firm with the new investors.

Debt financing : This is when a company raise a capital for the day to day running of the company known as a working capital through the selling of bond to individuals or institutional investors, in which those individuals or the institutional investors will now become a creditors to the company. As a result of been the creditor to the company they will be paid interest on the amount of money they lend to such company. However, In selecting the sources of funds by a company, the following must be taken into consideration

Cost of obtaining the fund : The cost of obtaining the fund from the various sources must be weighed against the rate of return of the fund.

The burden and timing of principal and interest payment : The company must consider the timing of principal and interest payment. A company must not borrow what they cannot pay,the method of repayment may considerably affect the ability of the firm to repay the loan without difficulty.

Risk involved : This refers to the possibility that the contributor of the fund may someday seek to withdraw his investment or attract higher interest rate.

Maturity of the debt : The duration or the specific use of the money will determine the best sources for the money. They company must consider maturity dates of the loan because they must plan in advance to have sufficient cash on hand when the