Final answer:
If a small firm needs funding for expansion, it would be preferable to raise the funds by issuing stock rather than borrowing. Issuing stock allows the firm to raise capital without incurring debt obligations and share the risk with a broader group of investors.
Step-by-step explanation:
In a situation where a small firm needs a surge of financial capital to carry out a major expansion, it would be preferable to raise the funds by issuing stock rather than borrowing. Issuing stock allows the firm to raise capital without incurring debt obligations, which can help to strengthen the firm's financial position. Additionally, issuing stock allows the firm to share the risk and potential rewards of the business with a broader group of investors.