Final answer:
The correct option is C) Capital structure, which is the mix of debt and equity a firm uses to finance itself, influencing control over operations and financial risk. Capital structure includes issuing stocks and bonds, opting for loans, and utilizing equity from shareholders. The correct option is C) Capital structure.
Step-by-step explanation:
The relative proportions of debt, equity, and other securities that a firm uses to finance itself is referred to as its capital structure. Corporations, which are businesses owned by shareholders, utilize various means of financing. Equity represents ownership in the company through shares of stock that shareholders hold, providing them with a claim to a portion of the company's profits, which may be distributed as dividends.
On the other hand, debt typically comes in the form of loans or issued bonds that have a fixed coupon rate, which is the interest rate paid on a bond. Unlike equity where shareholders have partial ownership, debt financing involves committing to scheduled interest payments regardless of the company's financial performance.
Diversification is a strategy in which a firm might invest in a wide range of companies or financial instruments to reduce overall risk. To maintain control over operations, a firm may prefer debt over equity to avoid the need to answer to additional shareholders.