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Mba 503 Long Term Financing

Running Head: METHODS OF LONG-TERM FINANCING

Long-Term Financing Paper


Methods of Long-Term Financing
In today’s business environment, firms must effectively use every strategy possible to remain competitive in their respective markets and maximize investor wealth. This is especially true when considering options for increasing the financial capital required for growth. Although there are many differing methods to raise financial capital, generally speaking, financing instruments fall into one of two categories: debt or equity (Securities Law, p. 1, 2008).
Both debt and equity represent opportunities to increase capital and provide a means for business expansion, each instrument has particular advantages and setback that must be successfully managed in order to achieve the firm’s desired result of maximized wealth through growth. One important item to consider when examining methods for raising capital involves the, “dilution of ownership that occurs by using equity instruments versus the obligation to repay which comes with the use of debt instruments” (Evans, p.1, 2005). The ability to manage the ratio of debt to equity in long-term financing, represents a critical decision making process that will determine the success or failure of a firm’s business ventures, as well as, determine who receives the benefits of the expected increase in wealth.
When considering avenues for expansion, long-term financing strategies provide the best opportunities to maximize investment dollars for use towards increasing production and or new product development. Long-term financing involves the use of debt and or equity instruments with greater than one-year maturities, and often serve as vehicles to create additional capital. Equity instruments allow for additional freedom with regard to cash flows, they also provide for dilution of ownership. Equity instruments involve the use of stocks to raise funds and are typically calculated using either the Capital...