How does equity financing compare to debt financing?
A) Equity financing is less flexible and more risky.
B) Equity financing is more flexible and less risky.
C) Equity financing is too expensive and too risky.
D) Equity financing is better for the firm even though it is more risky.

Question

Quizplus · Accepted Answer

Equity financing involves selling ownership shares of a company in exchange for capital. It is less risky compared to debt financing because there is no obligation to repay the borrowed money. Additionally, equity investors share the financial risk of the business, so it provides better cushioning for the company in case of business failures or downturns. Equity financing is also more flexible as there is no fixed repayment term or interest rate, and the investors may have a vested interest in the success of the business.

How Does Equity Financing Compare to Debt Financing