What are the advantages and disadvantages to raising equity vs. debt?

Equity

• Pros: In a strong market, a company may be able to receive a premium on its equity.
• Cons: The expected return on equity is higher (at least 12%-15%) making it more expensive than debt

Debt

• Pros: Interest on debt is tax deductible, reducing it’s cost
• Cons: The company’s debt is less marketable if it’s already highly leveraged. Additionally, the interest payment on the debt make it more difficult for it to be cash flow positive.

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