1. Debt financing has several advantages over equity financing. The first is that the cost of debt for most firms is lower than the cost of equity. The relative cost of debt or equity is weighed against other opportunities in the market. Given that debt is guaranteed, it is secure to the extent that the company can meet its obligations. The value of equity is less secure, and also bears more market risk. This contributes to the higher cost of equity and the lower cost of debt. Another advantage of debt financing is that the issuance of debt does not result in a dilution of control over the company. Equity typically comes with voting power embedded, thus giving the equity investor a voice in how the company is run. That does not occur with debt financing. A potential advantage of debt financing is that it increases the firm's leverage. The result of increased leverage is that as the firm's assets increase, equity increases at a faster rate. Thus, in a growing firm, debt can provide additional value to the ownership group.
             Increased leverage can also be a disadvantage, however. Leverage equates to risk, therefore increased leverage results in a sharper reduction in equity during times when the firm's assets are shrinking. Therefore, a firm with a high debt ratio is more vulnerable to economic fluctuations both positive and negative. A related disadvantage is that debt means that the firm has fixed financial obligations (interest payments). These obligations must be met regardless of whether or not the firm is making money. Thus, debt can weight down a struggling firm, reducing opportunities to make profits or to plow those profits back into the company's growth. Another consideration is that for young companies, the cost of debt may be very high, or the debt may be unavailable altogether. Therefore, debt may not even be a viable option, whereas the equity option is almost always available.
             2. Ac...