Mix of Debt and Equity

TABLE OF CONTENT

I. ABSTRACT 1

II. INTRODUCTION 2

III. BACKGROUND 4

1. Definition of debt and equity 4 a) Definition of Debt 4 b) Definition of equity 5 2. Example of mix structure capital 5

IV. TECHNICAL SECTION 11

1. Debt Financing – Pros & Cons 11 a) Definition and Classifications of Debt Financing 11 b) Advantages of Debt Financing 14 c) Disadvantages of Debt Financing 15 2. Equity Financing – Pros & Cons 16 a) Definition & Classifications of Equity Financing 16 b) Advantages of Equity Financing 18 c) Disadvantages of Equity Financing 19 3. The mixture of Debt and Equity 20 a) Definition 20 b) Why do virtually all companies choose to finance themselves by the mixture of debt and equity? 22 c) What factors can affect the ratio of debt and equity of a company? 22 d) Optimal Level of Debt-to-Equity 24

V. CONCLUSION 27

I. ABSTRACT

In the age of Globalization and specially globalized economy, there are more and more people getting involved in doing business. Nevertheless, just a few can get succeed.

To be a successful entrepreneur, the first important thing you should care about is capital. “How can I raise fund for my business?”, “From whom can I get money to operate my company?”, “What kind of capital that suits my business best?”, etc…. are the very common questions to consider before setting up a business. An effective capital structure can help you to not only obtain your goals and reach succeed but also expand your business quickly and stably. However, it is not so easy to find out a good way of financing your company. Without a wise decision on capital structure, your business can be suffered and you will get loss as result. There is no specific formula for you to build the right capital structure, as it is affected by many factors.

Though this report can not show you exactly how to finance your business effectively, it aims to provide you the very first basic knowledge about some kinds of capital