Capitalizing on Expansion: Options for Financing Corporate Progression

Corporations step up their expansion plans and thus increase their demand for capital

Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?-Households start saving a larger percentage of their income-The economy moves from a boom to a recession-The level of inflation begins to decline-Corporations step up their expansion plans and thus increase their demand for capital-The Federal Reserve uses monetary policy in an attempt to stimulates the economy

When corporations decide to expand their business, they may require additional funds to finance their expansion plans. This increase in demand for capital can arise from various sources such as the acquisition of new assets, building new facilities, hiring new employees, or implementing new strategies. Whatever the reason for expansion, a corporation will require significant funds to finance these projects.

To meet their capital needs, corporations usually have several options to raise funds such as issuing stocks, seeking debt financing through loans from banks, or issuing corporate bonds. The decision of which option to choose will depend on a corporation’s financial situation, its credit worthiness, and the cost of capital.

Issuing stocks: Corporations can issue stocks to raise funds and increase their capital base. This involves selling ownership shares of the company to the public, which entitles the shareholders to a portion of the company’s profits and decisions. By issuing stocks, corporations can raise large amounts of capital without incurring any debt, but it may dilute the ownership of existing shareholders.

Debt Financing: Corporations can also seek debt financing from banks or other financial institutions by applying for loans. This lets corporations borrow the capital they need to fund their expansion plans and projects. Debt financing usually comes with an interest rate, which is the cost of borrowing the money. The borrowed amount must be repaid within a specific period and with interest.

Corporate Bonds: Corporations can also issue corporate bonds to raise capital. These bonds are debts that investors buy from corporations and repay with interest over a fixed period. Unlike stocks, corporate bonds don’t entitle a shareholder to ownership in the company. However, the corporation must pay the face value of the bond and the agreed-upon interest rate to the investor.

In summary, when corporations decide to expand their business, they will require capital to finance the expansion. They can raise funds by issuing stocks, seeking debt financing through loans, or issuing corporate bonds. The decision of which option to choose will depend on the corporation’s financial position, creditworthiness, and cost of capital.

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