BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -When a company issues convertible debt, it means that debt holders who choose to convert their securities into shares will dilute current shareholders’ ownership.

Detailed explanation-2: -Through the credit market, the firm fully internalizes the reduction in the value of newly issued debt. But a higher risk of default also lowers the value of existing debt. This dilution of the value of existing debt is not internalized by the firm (debt dilution).

Detailed explanation-3: -Control dilution describes the reduction in ownership percentage or loss of a controlling share of an investment’s stock. Many venture capital contracts contain an anti-dilution provision in favor of the original investors, to protect their equity investments.

Detailed explanation-4: -Debt Financing While debt does not dilute ownership, interest payments on debt reduce net income and cash flow. This reduction in net income also represents a tax benefit through the lower taxable income.