Final answer:
The internal source of funding for a corporation amongst the provided options is retained earnings, which is money kept within the company for future use. Small companies raise funds from private investors due to lack of resources for an IPO, and they may prefer IPOs over debt to avoid obligations. Moreover, venture capitalists usually have more insights into the profitability of small firms due to their involvement in management.
Step-by-step explanation:
Understanding Internal Financing
The internal source of funding to a corporation among the options provided is retained earnings. Retained earnings are the portion of a company's profit that is kept or retained and saved for future use, such as reinvesting in the business or paying down debt, rather than being distributed to shareholders as dividends. This contrasts with other sources like equity financing, where companies sell stock to raise money, and debt financing, where they borrow through vehicles such as bank loans or corporate bonds. Venture capital is an external source of financing where investors provide capital to startups with high growth potential in exchange for an equity stake.
Early-Stage Corporate Finance
Addressing the self-check questions:
- Very small companies often raise money from private investors as they may not have the required resources or stable financial history to conduct an Initial Public Offering (IPO).
- Small, young companies may prefer an IPO as it can raise substantial funds and provide liquidity for early investors without incurring debt obligations.
- Venture capitalists typically have better information about whether a small firm is likely to earn profits since they not only provide capital but often bring expertise and take an active role in management.
Fred's Home Equity
Fred's equity in his home would be the down payment made, which is 10% of the home's value. Therefore, $200,000 x 10% equals $20,000 in equity.