Final answer:
When a small firm needs financial capital for expansion, they can choose to borrow or issue stock. Borrowing involves taking on debt and repaying the lender, while issuing stock involves selling ownership to investors. The choice depends on factors like existing debt, future projections, control, and investor interest.
Step-by-step explanation:
Given the scenario where a small firm needs a surge of financial capital for a major expansion, borrowing or issuing stock are two viable options to consider.
If the firm chooses to raise funds through borrowing, they would take on debt and have to repay the borrowed amount, along with interest, to the lender over a specified period of time. This option allows the firm to maintain complete ownership and control over the business.
On the other hand, if the firm chooses to raise funds by issuing stock, they would sell a portion of ownership in the company to investors in exchange for capital. This option allows the firm to tap into the financial resources of the investors while sharing ownership and potential future profits.
Ultimately, the choice between borrowing and issuing stock would depend on factors such as the firm's existing debt, future financial projections, the level of control desired, and the willingness of investors to participate.