Assignment 2

858 words - 4 pages

Assume that you are financial advisor to a business. Describe the advice that you would give to the client for raising business capital using both debt and equity options in today’s economy. Outline the major advantages and disadvantages of each option.

There are pluses and minuses when looking to raise capital utilizing both debt and equity financing options. Debt financing is good to help grow your business by being able to pay for equipment and other assets before you have profit from your business. One of the key strategies of debt financing is it allows you to be able to practice an aggressive strategy in growing the business but depending on the interest rates of the loan this can ...view middle of the document...

Distribution of the business profits can sometime exceed what you could have repaid on a business loan.

Summarize the advice that you would give the client on selecting an investment banker to assist the business in raising this capital.

Choosing an investment banker must be approached with research on the background of the investment firm. Key questions such as experience, skill and number of deals closed. You will also want to know the team and the specialty each team member brings to the business. Clearly, the answer to these questions will be able to set the stage for trust, which is key for choosing an investment banker.

Explain the historical relationships between risk and return for common stocks versus corporate bonds. Explain the manner in which diversification helps in risk reduction in a portfolio. Support response with actual data and concepts learned in this course.

Investors in common stock versus corporate bonds have advantages and disadvantages to investing in either common stocks or bonds and carries different risks for both. The advantages of being a common stock investor they have an ownership claim, a board of directors manages the company, and voting rights are given for board members. The key disadvantages are they have the lowest claim on assets and cash; the stock never matures and remains in existence as long as the company is in existence or goes bankrupt. If the company performance is poor, the dividends to the stockholders are smaller and if the company is mismanaged...

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