Final answer:
The correct statement is that the firm will need to raise additional capital through external financing means such as debt or equity. External financing is often necessary because company profits alone may not suffice for significant investments or during the early stages of a firm's growth. A bond is a form of debt investment to raise capital via loans from investors.
Step-by-step explanation:
If a firm's pro forma financial statements project a net income of $12,000 and mention that there is external financing required, it implies that the net income is not sufficient to meet all of the firm's financial obligations or planned investments and that additional capital will need to be obtained from sources outside the company's operational income. The correct statement, in this case, is that the firm will need to raise additional capital through either debt or equity financing. This might involve borrowing money from a bank, issuing bonds, or selling equity through the stock market.
Firms often seek external financing because they cannot solely rely on reinvesting profits. This is particularly the case for startups or companies planning significant expansions, research and development, or capital-intensive projects. Moreover, banks may be more inclined to lend to well-established firms because they have a proven track record of profitability and are deemed to be lower-risk borrowers compared to new firms or those without a solid financial history.
A bond is a form of debt investment where an investor loans money to an entity (typically corporate or governmental) that borrows the funds for a defined period at a variable or fixed interest rate. Bonds are used by companies to raise capital and to make other investors the lenders.