4. Compare the advantages and disadvantages of debt financing and equity financing.

Debt Financing: Advantages: 1. Control: The business owner maintains full control and ownership of the company. Lenders have no say in the management or decision-making process. 2. Tax Deductions: Interest payments on the debt can be deducted from the company's tax obligations. 3. Predictability: Debt financing involves fixed repayment schedules, which makes budgeting easier. Disadvantages: 1. Repayment: Regardless of business performance, the company is obligated to repay the loan with interest. 2. Cash Flow: Regular repayments can impact the company's cash flow, especially if the business is not generating enough revenue. 3. Collateral: Most debt financing requires collateral, which can be seized by the lender if the loan is not repaid. Equity Financing: Advantages: 1. No Repayment: Unlike debt financing, equity financing does not require repayment. This can be beneficial for startups that may not generate revenue immediately. 2. Additional Resources: Investors often bring additional resources such as industry expertise, connections, and credibility. 3. Shared Risk: The risk of the business is shared among the investors. If the business fails, the owner is not solely responsible for the losses. Disadvantages: 1. Dilution of Ownership: By selling shares of the company, the owner gives up a portion of control and decision-making power. 2. Dividends: While not mandatory, shareholders often expect a return on their investment in the form of dividends. 3. Pressure for Performance: Equity investors typically seek businesses with high growth potential, which can put pressure on the company to perform.