Question

Merith Qin, a textile company, relies on self-funding in order to sustain the promotion of its new product in the market. The company sold its newly issued stock and was able to a mass a sizable amount of money to invest. What sources of long-term funds is being used by Merith Qin in the given scenario

Answer 1

Direct Investments from Owners

Step-by-step explanation:

Self funding refers to a corporate's financing it's projects by use of it's own funds in the form of retained profits or raising money internally i.e from existing shareholders.

Issue of stock is one of the modes of raising long term finance by a corporate. The other forms being debt, preference stock or deposits. Long term finance refers to money required to finance big projects requiring heavy investments and spread over a long period of time say 5 to 10 years.

In the given case, the company sold it's newly issued stock and amassed a considerable amount of money. In this case, the stock must've been issued to existing stockholders and thus money raised from existing owners.

Hence this source of raising long term finance is direct Investment from owners i.e stockholders.