Most Companies Use a Combination of Debt and Equity to Obtain

question 106

Essay

Most companies use a combination of debt and equity to obtain the assets needed to fund operations.
Required:
Discuss the advantages and disadvantages of using debt versus equity financing as it relates to dividends, interest, and risk.

---

Definitions:

Company Tax Rate

The percentage of a corporation's profits that is paid to the government as tax.

WACC

Weighted Average Cost of Capital; a calculation that reflects the cost of a company's financing including both debt and equity.

Return on Investment

A financial ratio used to evaluate the efficiency or profitability of an investment, calculated by dividing the benefit (return) of an investment by the cost of the investment.

Investment Centres

Business segments or units within an organization that are responsible for their own revenues, expenses, and asset investments.