BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -The cost of equity is more than the cost of debt and it is a risky form of investment as the shareholders will only get returns if the company makes a profit, but in the case of debt, the lenders need to be paid a fixed rate of interest for loans. Also read: What Is Equity?

Detailed explanation-2: -Debt involves borrowing money directly, whereas equity means selling a stake in your company in the hopes of securing financial backing. Both have pros and cons, and many businesses choose to use a combination of the two financing solutions.

Detailed explanation-3: -The main distinguishing factor between equity vs debt funds is risk e.g. equity has a higher risk profile compared to debt. Investors should understand that risk and return are directly related, in other words, you have to take more risk to get higher returns.

Detailed explanation-4: -Equity capital reflects ownership while debt capital reflects an obligation. Typically, the cost of equity exceeds the cost of debt. The risk to shareholders is greater than to lenders since payment on a debt is required by law regardless of a company’s profit margins.

Detailed explanation-5: -Debt financing involves the borrowing of money whereas equity financing involves selling a portion of equity in the company. The main advantage of equity financing is that there is no obligation to repay the money acquired through it.