Chapter

16.5. Equity Financing*

From IntroductionToBusiness OP 8D04gAa

Concepts

1. What are the major differences between debt and equity financing?

   "Interest is a tax-deductible expense. Dividends are not tax-deductible and are paid from after-tax income. Equity refers to the owners’ investment in the business. In corporations, the preferred and

2. What are the major types and features of long-term debt?

   "A term loan is a business loan with a maturity of more than one year. Term loans generally have maturities of 5 to 12 years and can be unsecured or secured. They are available from commercial banks,

3. How do firms obtain equity financing and issue common stock?

   "A firm obtains equity financing by selling new ownership shares (external financing), by retaining earnings (internal financing), or for small and growing, typically high-tech, companies, through ven

4. How do dividends and retained earnings affect equity financing?

   "Dividends are payments to stockholders from a corporation’s profits. Dividends can be paid in cash or in stock. Stock dividends are payments in the form of more stock. Stock dividends may replace or

5. How do preferred stock and venture capital provide equity financing?

   "Another form of equity is preferred stock. Unlike common stock, preferred stock usually has a dividend amount that is set at the time the stock is issued. These dividends must be paid before the comp