Final answer:
Firms choose how to access financial capital through borrowing, issuing bonds, or selling stock, with each option presenting its own set of advantages and challenges regarding control and repayment commitments. Issuing stock trades equity for funds but introduces shareholder accountability.
Step-by-step explanation:
A firm must often make strategic decisions on how to access financial capital to fund its operations and growth. This can be done through borrowing from a bank, issuing bonds, or selling stock. Borrowing money, either from a bank or through bonds, means the firm must commit to scheduled interest payments, which can be a burden if income is insufficient. However, it allows the firm to maintain complete control over its operations, without interference from shareholders. On the other hand, issuing stock means selling off a portion of the company's ownership to the public, which introduces a new layer of accountability to a board of directors and the shareholders.
The decision on which route to take will deeply impact the firm's financial structure and operational autonomy. In the nineteenth century, credit purchases began growing in popularity, allowing more people to acquire items that were previously considered luxuries reserved for the wealthy. This has evolved into what we see today with installment financing and revolving credit options, providing consumers with payment variety and credit flexibility. Companies who offer these types of financial options enable customers to make purchases without immediate full payments, which can be an attractive selling point and a way to boost sales.