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What is a financing mix? What are the two options available to engineering firms for financing...

Question:

What is a financing mix?

What are the two options available to engineering firms for financing the projects?

What are the advantages and disadvantages of both the options?

Financing:

Financing refers to the process of acquiring financial resources to fund the business operations of a given firm. These operations can involve the day-to-day activities of the firm or the big projects and investments that the firm undertakes periodically. These financial resources can be acquired from several public and private sources.

Answer and Explanation:

A financing mix refers to the proportion of sources of capital that a company utilizes to achieve its organizational goals. For this reason, it can also be referred to as the firm's capital structure. The two financing options available to engineering firms in funding their projects are equity and debt.

Advantages of equity

  • One does not need to repay the capital raised.
  • There are no time restrictions or stipulations.

Disadvantages of equity

  • The sale of equity represents a permanent loss of ownership of the share of equity sold.
  • It is costlier than the debt due to the permanent loss of a share of all future profits.

Advantages of debt

  • It is cheaper since it is only a finite amount of money.
  • Since interest payments are tax-deductible, it lowers a firm's tax bill.

Learn more about this topic:

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What Is Financing? - Definition & Types

from Corporate Finance: Help & Review

Chapter 8 / Lesson 7
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