Chapter 10.1, Problem 5R

To determine

To state: Two ways of earning profits through financing.

Answer to Problem 5R

Equity and debt financing are the two ways to finance a business and earn profits.

Explanation of Solution

There are two ways by which person who finance a business can earn profits:

1) Equity Financing - It is a method to increase the capital of the firm by selling the company's stock to the investors. The shareholders get the ownership of the firm in return to their investment.

2) Debt financing - It is the opposite of equity finance. In this way, the money is raised by borrowing from the lender which is to be paid back along with the interest as on the dates decided by both the parties.

Economics Concept Introduction

Introduction: Financing refers to the act of granting money to the businesses to help them conduct their operations.