Final answer:
Factoring refers to the sale of accounts receivables for immediate capital and does not involve equity or debt financing, a prospectus, or leveraging. It is a business transaction that provides liquidity without incurring debt or selling ownership in the company. Thus, the options 1, 2, and 5 is the correct answer.
Step-by-step explanation:
Factoring is a financial transaction where a business sells its accounts receivables to a third party (called a factor) at a discount, in order to obtain immediate capital. It is not equity financing, as it does not pertain to the sale of company stock or ownership. A prospectus is a formal legal document required for selling securities, which is not the case in factoring. Factoring also does not involve debt financing, as it is not a process of borrowing money that needs to be repaid with interest over time. Lastly, leverage refers to the use of borrowed capital to increase the potential return on investment, which also differs from the concept of factoring.
Firms can raise financial capital in various ways such as from early-stage investors, by reinvesting profits, borrowing through banks or bonds, and selling stock. When a firm chooses how to finance its operations or growth, it must consider both the costs and potential risks associated with each option. In the case of factoring, a firm chooses to sell its receivables for immediate liquidity without incurring debt or diluting ownership.