Question

If you owned a small firm that had become somewhat established, but you needed a surge of financial capital to carry out a major expansion, would you prefer to raise the funds through borrowing or by issuing stock? Explain your choice.

Short answer

in case of business expansion the best solution will be to issue stock.

Step-by-step solution

Concept introduction

Financial investment: an investment that yields a profit asset.

Explanation of solution

The act of issuing stock entails selling the company's shares (ownership) to shareholders. The advantage is that financial capital can be raised without having to worry about repayment. In the market, the company's visibility grows. If the company makes a profit, dividends will be given to shareholders, which has a positive impact on the company's reputation, share prices, shareholder wealth, and trust, and the company will attract more investors.

As a result, issuing stock is the best alternative.