FINANCE

Understanding the Concepts

Understanding the Concepts

NPV and Payback

The NPV and Payback are two financial tools from financial mathematics that allow us to assess the profitability of an investment project, meaning investment project not only as the creation of a new business, but also as investments we can make in a going concern, such as developing a new product, the acquisition of new machinery, entry into a new category of business, etc. The NPV and Payback is the financial indicator that measures the flow of future revenues and expenditures that have a project to determine if, after deducting the initial investment, we would have a profit. If the result OF NPV is positive, the project is viable.

Advantages and Disadvantages of Debt Financing

Debt financing occurs when the company borrows money to be repaid with interest within a specified period. Short-term loans payable within 12 months and long-term loans to pay for treatment beyond 12 months are the main financing options for small business debt. Loans can be personal loans, commercial loans or home equity loans. Financial institutions and micro-finance and Small Business Administration (SBA) are among the main sources of debt financing for small businesses in the U.S. Unlike debt financing, however, capital funding is the money obtained from investors in exchange for equity stake in the company. These funds may come from investors, friends and family (Brigham and Ehrhardt, 2010).

Property

Predicts debt financing advantages of the property because the borrower does not have to give up a portion of the property rights of lenders. This is unlike capital stock financing that requires the owner of a small company to waive some of the property rights of shareholders. This is because investors obtain property rights and management of the company after buying shares.

The rights to benefits

In debt financing, your company enjoys all the benefits due to their financial lenders do not make profit-sharing rights in the business. Your company is only obligated to pay the loan principal and interest. This means that your business does not have any additional obligation on the financial creditors in full settlement of the debt. In equity financing, the company must share benefits with other investors because they have property rights in the business (Vallabhaneni, 2009).

Relationships and Regulation

Debt financing is managed through ongoing contacts between the volunteers of the lender and the borrower - unless the borrower defaults on loan repayments. As a borrower, you are not required to communicate regularly with the lender on a regular basis, provided you loan repayment installments. Unlike debt financing, the capital stock of bonds financing the business owner to a number of mandatory requirements of regulators, shareholders periodically update via email, consult with shareholders before making decisions and holding annual general meetings.

Cost

Debt financing comes with the disadvantage of the burden of loan repayment and fixed costs of the interest payable over the loan repayment period. This load can slow the growth of the company because you should always give priority to repayment of loans before the expansion of its ...