Accounting Paper

Debt Vs. Equity Financing

ACC/400 Accounting for Decision Making

One of the greatest tools and organization is the ability to finance and one option of financing is a lease. A lease is a contract between two organizations that allows the one organization to use and operate a piece of property over a period of time. Another option is equity financing where an organization releases stock in order to create funds to use for various purposes. A third option an organization can use is the sale of bonds. Bonds are loans that and organization obtains that are paid back with a set amount of interest over a given period of time. Each of these options has a positive and negative traits.

A lease gives an organization the ability to obtain equipment, land and other property without having to purchase the asset out right. A lease is an agreement that allows the organization to use the property during a period of time. When the lease has expired the organization has the choice whether to purchase the asset for a reduced price or to obtain a new property with a new lease. A lease has advantages especially for manufacturing organizations that use extremely expensive machinery that will eventually become obsolete. A lease allows an organization to obtain new machinery or property at the end of the lease. This new property can allow the organization to stay ahead of the competition. This option also allows the organization to keep cash that would have been used to purchase the equipment for other projects and investments.

Equity financing is a tool that an organization can use to obtain capital for operating expenses or to add services. Equity financing is the issuing of preferred or common stock to obtain capital. This type of financing allows an organization to obtain capital by using the equity that has been built up over time by doing business. This type of capital does not have to be paid back in any particular period of time but dividends are dispersed to the...