MANAGEMENT

Detailed explanation-1: -It’s seen as a lower risk financing option because investors seek a return on their investment rather than the repayment of a loan. Plus, investors typically are more interested in helping you succeed than lenders are because the rewards can be substantial.

Detailed explanation-2: -Many fast-growing companies would prefer to use debt to support their growth, rather than equity, because it is, arguably, a less expensive form of financing (i.e., the rate of growth of the business’s equity value is greater than the debt’s borrowing cost).

Detailed explanation-3: -Consider equity financing if: Equity financing may be less risky than debt financing because you don’t have a loan to repay or collateral at stake. Debt also requires regular repayments, which can hurt your company’s cash flow and its ability to grow. You’re a startup or not yet profitable.

Detailed explanation-4: -If you are the investor, the cost of equity is the rate of return required on an investment in equity. If you are the company, the cost of equity determines the required rate of return on a particular project or investment.