Final answer:
Entities that typically employ significant leverage include hedge funds and REITs, whereas money market funds and equity mutual funds use less. The choice between private funding, IPOs, bonds, and bank loans is critical in early-stage corporate finance. Calculating home equity involves determining the amount of home value owned outright, as with a 10% down payment on a house purchase.
Step-by-step explanation:
The entities that typically employ significant amounts of leverage are hedge funds and REITs (Real Estate Investment Trusts). Hedge funds often use leverage to amplify their investment strategies and returns, while REITs may use leverage as part of their capital structure to finance the purchase of real estate assets. On the other hand, money market funds and equity mutual funds typically employ less leverage; money market funds are required by regulation to focus on preserving capital and maintaining liquidity, and hence they invest in low-risk, short-term instruments, while equity mutual funds invest in stocks and are regulated in such a way that tends to limit their use of leverage.
Early-stage corporate finance is important for understanding how companies grow and develop. Raising money from private investors is common for very small companies as it is less costly and complex than an IPO. In contrast, small, young companies may prefer an IPO because it can provide greater amounts of capital and access to a larger pool of investors. Between a venture capitalist and a potential bondholder, the former typically has better information about whether a small firm is likely to earn profits because venture capitalists often take a more active role in the management and have deeper insights into the company.
From a firm's perspective, a bond is similar to a bank loan in that both are forms of debt that require regular interest payments and the return of principal at maturity. However, bonds are typically traded on public markets, which can offer greater liquidity and potentially lower costs of borrowing compared to bank loans, which are privately negotiated.
In terms of calculating equity in a home, for instance, if Fred bought a house for $200,000 with a 10% down payment, his equity would be $20,000 initially, since this is the portion of the home's value he owns outright without debt.