Final answer:
Corporations can send cash to investors through dividends, reinvesting profits for growth, borrowing for operations without diluting ownership, and selling stock. Each method has implications for corporate control and investor returns.
Step-by-step explanation:
The four forms in which a corporation can send cash to its investors are:
- Distributing earnings as dividends, which is a direct way to return cash to shareholders.
- Reinvesting profits into the business for future growth, which can indirectly benefit investors through increased share value.
- Borrowing through banks or issuing bonds; although this does not send cash directly to investors, it can finance operations or growth without diluting ownership, potentially leading to higher dividends or share value in the future.
- Selling stock, which allows investors to realize cash by selling their shares in the public market, though this is not a direct payment from the corporation to its investors.
When selecting sources of financial capital, corporations must weigh the pros and cons, such as control versus obligations. For example, borrowing requires interest payments but maintains corporate control, while issuing stock invites capital without immediate cash obligations but dilutes control and introduces responsibilities to a board of directors and shareholders.