Understanding Acquisition of Capital

What is the primary purpose of capital for a corporation?

• To pay taxes

• To start up, operate, and expand its business

• To hire employees

• To purchase raw materials

What is the process of acquiring capital known as?

• Investing

• Financing

• Trading

• Borrowing

Which of the following are the two basic types of financing used by corporations?

• Stock financing and bond financing

• Equity financing and debt financing

• Short-term financing and long-term financing

• Internal financing and external financing

What does equity financing refer to?

• Borrowing funds from external sources

• Investing funds by owners of the corporation

• Selling products to customers

• Leasing equipment from vendors

What does debt financing involve?

• Borrowing funds from sources outside the corporation

• Investing in real estate

• Issuing new shares of stock

• Selling corporate assets

Which type of transaction exemplifies equity financing?

• The sale of corporate bonds

• The sale of corporate stock

• Borrowing from a bank

• Leasing equipment

What do shares of stock represent?

• Units of debt

• Units of ownership

• Units of profit

• Units of liability

What is a person who purchases shares of stock called?

• Bondholder

• Lender

• Stockholder or shareholder

• Debtor

What is the main source of starting capital for all corporations?

• Selling products

• Issuing and selling shares of stock

• Taking out loans

• Leasing property

What risk do buyers face when purchasing initial shares of stock in a corporation?

• High interest rates

• The corporation has no record of performance

• Lack of market demand

• Corporate fraud