Final answer:
Equity funding and debt funding have advantages for a small firm seeking to raise financial capital for a major expansion. Debt funding involves borrowing money or issuing bonds and offers the advantage of maintaining control over operations and avoiding dilution of ownership.
Step-by-step explanation:
When a small firm needs a surge of financial capital for a major expansion, it can choose to raise the funds through equity funding or debt funding. Both options have advantages:
Equity Funding: Raising funds through equity funding involves issuing stock and selling ownership of the company to the public. The advantages of equity funding include:
Not committing to scheduled interest payments.
Maintaining control of operations and not being subject to shareholders.
Debt Funding: Raising funds through debt funding involves borrowing money from a bank or issuing bonds. The advantages of debt funding include:
Having control over operations.
Not being subject to shareholders.
Avoiding dilution of ownership.