Discussion: Capital Budgeting of the investment decision

Capital Budgeting
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Capital Budgeting
When an organization wants to invest in IT, it has an option of using either equity or debt financing. The two financing options have challenges. One of the key challenges of debt financing is the fact that unlike equity financing, the organization must repay the debt at some point. Debt financing is associated with the cost of capital, which reduces the organization’s profitability. Debt financing may increase the debt-equity ratio to alarming levels, which might discourage investors from acquiring the organization’s stock. Lenders may as well fail to finance an organization after learning that the debt-equity ratio, which may bring problems to the organization (Brealey, 2011).
A key challenge associated with equity financing is the fact that the organization uses its cash, which might bring cash flow problems. The cash flow helps in supporting the working capital, and poor cash flow may affect the organi...