Final answer:
In a company with many shareholders, key financial questions include the process and timing of stock sales, the rate of return on stock, and decision-making, which is often in the hands of a board of directors. Banks act as financial intermediaries by channeling funds from savers to borrowers. A small firm needing to expand must weigh the pros and cons of borrowing versus issuing stock based on its specific circumstances.
Step-by-step explanation:
When a company is owned by a large number of shareholders, several key questions arise regarding its financial and operational management. One of the primary questions is how and when does the company obtain money from its sale of stock. This typically occurs during public offerings, where shares are sold to investors, providing capital to the company for its operations and expansion.
The second question involves the rate of return promised to shareholders, which is often influenced by the company's performance and market conditions. This return can come in the form of dividends or stock price appreciation. Finally, the decisions within the company are generally made by its board of directors and executive management team, which are elected or appointed by the shareholders to act in the best interests of the company.
When considering the selection of company managers, shareholders typically exercise their power through voting rights at annual general meetings or special meetings. This democratic process ensures that the interests of the shareholders are represented in the company's strategic direction.
Concerning financial intermediaries like banks, they are termed as such because they mediate between savers and borrowers, facilitating the flow of funds and providing liquidity in the market.
In the scenario of a small firm needing capital for expansion, the choice between borrowing and issuing stock will depend on various factors, including the firm's current financial situation, ownership control concerns, and the cost of capital associated with each option. Borrowing could mean retaining full ownership but with the added burden of debt repayments, while issuing stock could dilute current ownership but might provide a more substantial capital base for expansion without fixed repayment obligations.