Final answer:
The purchase of stock on a contract installment basis is akin to buying on margin, which involves paying for stock over time in installments. This allows investors to leverage their money, and it helps firms raise capital without immediate repayment obligations while enhancing their market presence.
Step-by-step explanation:
Purchase of stock on a contract installment basis refers to the practice of buying shares of a company over time, with payments spread out in installments, rather than paying the full price upfront. This method parallels the concept of "buying on margin", where investors leverage their money to buy more stock than they could with only their available funds by borrowing the rest. In the context of businesses raising financial capital, selling stock is one way in which they can gain the necessary funds for expansion without having to repay borrowed money directly, while increasing their visibility in the financial markets.
When shareholders purchase shares, they essentially buy partial ownership in a firm. The firm raises capital through this initial transaction, but subsequent transactions between investors do not directly contribute funds to the firm. However, the company benefits from higher stock prices in terms of market capitalization and the potential to raise more funds through future stock issues.