Answer to Question #50297 in Other Management for Subramanian
When companies raise capital one of their main objectives would be to minimise the overall cost of the capital they are seeking to raise. Be it equity capital or debt capital, the businesses will seek to achieve either the lowest level of dilution, or the lowest rate of interest on the debt instrument – or, even more likely, both.
Raising capital can be as simple as using a bank overdraft facility or as complex as designing a whole capital raising program which would finance both current operations as well as future growth plans. It is always advisable to plan well in advance for such programs so as to reduce any chance of jeopardising the business due to lack of finances. Such programs would typically be characterised by both debt and equity. The key is to achieve the right debt-equity combination which would minimise the overall cost of capital and hence maximise shareholder wealth. Furthermore, this combination should also be suited to the company’s existing and future expected cashflows in order to ensure longevity of such a program.
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