Final answer:
NMO Inc. will use leverage, effectively borrowing funds to increase potential returns on equity. Leverage and debt financing enable a firm to maintain control over operations but require scheduled interest payments. In contrast, equity financing involves selling stock and diluting ownership but does not necessitate regular payments.
Step-by-step explanation:
NMO Inc. will use leverage by borrowing funds to increase the return on the owners' equity. When a company uses leverage, it means it is using borrowed money to finance its business operations and investments. This can amplify both gains and losses, which makes it a powerful but risky strategy. The alternative methods include equity financing, where a company raises capital by selling shares of stock, and debt financing, which involves borrowing money directly, typically in the form of loans or bonds.
In context with raising financial capital for a company, leverage and debt financing are often used interchangeably. They both involve taking on debt to increase potential returns on equity. This is different from equity financing, where no debt is incurred, but ownership is diluted. Lastly, private placement is a means of selling securities to a small number of select investors as a way of raising capital without going public.
When deciding whether to raise funds through borrowing or issuing stock, one must consider the advantages and disadvantages. Borrowing, or debt financing, allows a firm to maintain control and avoid dilution of ownership, but it requires regular interest payments regardless of income. Issuing stock, on the other hand, may not require regular payments, but it does involve selling ownership and possibly surrendering some control to shareholders and a board of directors.