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What Are The Advantages And Disadvantages For American Semiconductor To Forgo Their Debt Financing And Take On Equity Financing?

772 words - 3 pages

American Semiconductor, Inc. is a relatively new business that "provides custom and standard processing services to fabless and IDM companies and researchers." With the deregulation of certain markets and increasing environmental concerns, the company operates in a rapidly changing business environment. The prospects of American Semiconductor's products are frequently reviewed, as with any organization, and the company's strategy is constantly analyzed. Therefore, the business decided to relinquish their debt financing and acquire equity financing; a decision that is not advantageous for a privately owned organization unless the owner wishes to give up total control of the business.Currency is the necessary means for every person to achieve something new. To begin business, money is required. Financial support is paramount for all types of company expenses such as rent, employee salaries, purchase of new equipment and other parallel expenses. This is often established in all new companies, but the corporations that are previously in existence involve financing to expand the business activities, refurbish the offices or factories or to invest in new profit producing ventures. Most companies can increase funds either by owing money or selling the equity, conditional on a range of criteria.Debt financing represents any type of borrowing with a guarantee to reimburse the borrowed sum over a particular period of time in addition to interest payments. Accordingly, a company will take out a loan in some type from a lending institution and then the company can use the money on loan for any principle required by the company, and in response the lender will expect the debtor to make the payments along with the interest in a particular period of time.Furthermore, debt financing means money that anybody owes to someone. The person who lends the money is only concerned about the correct and timely repayment of the debts. Usually this sort of financing occurs with the banks and the small business units. The basic advantages of debt financing are that the owner maintains maximum control over the business and the interest of the debt financing is tax deductible. There are some disadvantages also; too much debt can cause problems if the dependence on such type of financing is more than what is required, allowing a situation to develop where there will be not much revenue left to pay back the loan.Equity...

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