ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The equity value (or net asset value) is the value that remains for the shareholders after any debts have been paid off.

Detailed explanation-2: -Capital is the value of property you possess (such as bank accounts, investments, real estate, and other assets) after deducting your debts.

Detailed explanation-3: -Collateral-Property pledged to assure repayment of debt.

Detailed explanation-4: -One advantage of debt financing is that it allows a business to leverage a small amount of money into a much larger sum, enabling more rapid growth than might otherwise be possible. Another advantage is that the payments on the debt are generally tax-deductible.

Detailed explanation-5: -Preserve company ownership The main reason that companies choose to finance through debt rather than equity is to preserve company ownership. In equity financing, such as selling common and preferred shares, the investor retains an equity position in the business.