Module code ACC4004. Financial Management Exam. Term Paper (Term Paper Sample)

Unit Name
Enter Student Name
Student ID number
Module code ACC4004
Lecturer Names
22 April 2020
Question 1
Merits and demerits of private equity capital
Private equity capital involves financing a business through engel investors who have huge capital ready to invests and share the stake in any business with a huge potential of growth before investing in it (Robert, 2017). It has various merits and demerits. The benefits include: accessibility to huge funding as it provides very huge capital from the financiers who are extremely wealthy. They can also access huge credit from banks which can then be reinvested in the investment. The investors get actively involved in re-evaluating the business on various aspects to maximize their wealth. In turn it helps business to grow much faster than individual investment. They are also personally involved in the running of the business and provide every support to ensure success at all costs. The huge funding enables an increase in the scale of operations and this eventually results in high profits and returns on investment unlike using limited funds.
Despite the many benefits, private equity is also associated with a number of disadvantages that include; dilution or loss of ownership stake as more money invested in the business comes with ownership stake and control on how the business is to be run. There can be loss of management control, as the other investors are also actively involved in managing the business. The investors may change the direction and management of the business and steer it in a way that the owner had not intended.