Chapter 15, Problem 5CQ

Summary Introduction

To determine: The main difference between corporate equity and debts. Also the reason for companies tries to issue equity in pretext of debts.

Equity:

Equity is the degree of ownership in assets after all debts related with those assets are paid-off. For example, a house with no debt outstanding is considered entirely the owner’s equity as he or she can readily sell the products for cash and save the remaining sum.

Debt:

Debt is the amount of capital borrowed by a party from another. It is used by several individuals and companies as a technique of making large purchase that cannot be affordable under normal situation.