The fundamental difference between the suppliers of debt and equity financing.

Debt financing means borrowing money and not giving up ownership. Debt financing often comes with strict conditions or covenants in addition to having to pay interest and principal at specified dates. Failure to meet the debt requirements will result in severe consequences.. Adding too much debt will increase the company's future cost of borrowing money and it adds risk for the company.

Equity financing often means issuing additional shares of common stock to an investor. With more shares of common stock issued and outstanding, the previous stockholders' percentage of ownership decreases.

49. Explain the relationships between strategic goals and three types of organization structure: functional, matrix, and team.

Several competitive strategies that a business can adopt: differentiation and cost leadership. With a differentiation strategy, the organization attempts to develop innovative products unique to the market. With a cost leadership strategy, the organization strives for internal efficiency. The strategies of cost leadership versus differentiation require different organizational structures, so managers must pick strategies and structures that go well together.

Figure 1.2 shows how structures should be matched with strategic goals. The pure functional structure is appropriate for achieving internal efficiency goals. The functional structure uses task specialization and a strict chain of command to gain efficient use of scarce resources, but it does not enable to be flexible or innovative. In contrast, team structure is appropriate when the primary goal is innovation and flexibility. Each team is small, is able to be responsive, and has the people and resources necessary for performing its task. The flexible team structure enables organizations to differentiate themselves and respond quickly to environmental changes but at the expense of efficient resource use. The functional structure with cross-functional teams and project managers provides greater coordination and flexibility than the pure functional structure. The divisional structure promotes differentiation because each division can focus on specific products or customers, although divisions tend to be larger and less flexible than small teams.

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