Author Question: Explain the difference between financing investment with a business loan versus with venture ... (Read 58 times)

Cooldude101 · **on:** Jun 29, 2018

Explain the difference between financing investment with a business loan versus with venture capital. What are the pros and cons of each?

What will be an ideal response?

Question 2

The table above represents five points on the production possibility frontier for the small country of Baca, which produces only rugs (measured in thousands) and wheat (measured in thousands of bushels): Does the production possibility frontier

demonstrate the law of increasing opportunity cost? How can you tell?

fdliggud · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Financing with a loan involves accepting an obligation to repay a debt. Financing with venture capital involves accepting funds in exchange for a portion of ownership of the company. With a loan a business owner retains control of her company but must generate enough profit to cover operating costs and loan payments. This may not be possible for a new company. With venture capital there is no obligation to repay the funds. However, a business owner must forfeit some profits and control of her company to the venture capitalist.

Answer to Question 2

Yes. The opportunity cost of increasing the production of wheat rises as more wheat is produced. The opportunity cost of the first 10,000 bushels of wheat is only 5,000 rugs, but the opportunity cost of the fourth 10,000 bushels of wheat is 20,000 rugs.