Re: msaada kuhusu debt financing
Ukisoma topic usipoelewa unarudia tena. In short, the firm can be finance by Equity (capital contribited by owners + profit retained in the firm) and debts (money invested in the firm from lenders who are not owners of the company). Both owners (equity holder) and lenders (debt finance) require return for use of their money. Owners are compensated in form of dividend whereas lenders and compensated in form of interest. The difference between returns to the two group is that dividend paid to the owner is not an allowable expense for tax purpose whereas interest is an allowable expense for tax purpose. Due to tax implication of dividend (adverse) and interest (positive); debt finance is considered to be cheaper than equity finance. However, excessive debt finance increase the risk of bankruptcy.
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