What is a financing mix?

Question:

What is a financing mix?

Financing:

A firm conducts operations by integrating the assets and workers to be able to generate revenues and profit.In running a business the firm will have different financial needs and will have to consider the different available sources of financing.

Answer and Explanation:

What is a financing mix?

Financing refers to sourcing for funds from financial institutions or investors with an agreement to payback after a specified period of time at a set interest rate. A company may be financed using capital or through debt. Sources of capital include owners equity, retained earnings, preference capital and venture capital. Debt can comprise of loans and debentures.

Finance mix is therefore the combination of debt and capital that a firm utilizes in order to meet its goal of maximizing the value of the firm. A firm will operate with the goal of maximizing shareholders wealth and for this to be achieved, a proper financing mix should be implemented. Financing mix will consider the cost of each source of financing. Debt can be considered as a cheaper source of financing in that the if raised through capital it is then considered tax deductible and also because after settling the debt the asset is fully owned by the company. The cost of debt will also be set relative to the market rates. The cost of equity will be determined by the level of risk of the project and an investor may require a higher return if the project is too risky.


Learn more about this topic:

Loading...
What Is Financing? - Definition & Types

from Corporate Finance: Help & Review

Chapter 8 / Lesson 7
111K

Related to this Question

Explore our homework questions and answers library