Why might ABC use share capital to fund expansion?

Why might ABC use share capital to fund expansion?

• A. It can raise large funds through share issues as a publicly held company.
• B. It can borrow at zero cost from banks.
• C. It can avoid paying taxes by issuing shares.
• D. It can reduce its workforce to save cash.

Answer: (A)

Raising funds for expansion often relies on equity finance, and issuing share capital fits that need well. When a publicly held company sells new shares, it taps into a broad pool of investors who supply capital in exchange for ownership stakes. This can bring in large sums without creating a fixed repayment obligation, so the company isn’t burdened by interest payments and debt payments during a growth phase. That makes it a flexible way to fund bigger expansion plans. The idea that you can borrow at zero cost from banks isn’t realistic, and issuing shares doesn’t let a company dodge taxes. It also isn’t about saving cash by cutting staff; reducing the workforce is a cost-cutting move, not a means to fund growth.

Raising funds for expansion often relies on equity finance, and issuing share capital fits that need well. When a publicly held company sells new shares, it taps into a broad pool of investors who supply capital in exchange for ownership stakes. This can bring in large sums without creating a fixed repayment obligation, so the company isn’t burdened by interest payments and debt payments during a growth phase. That makes it a flexible way to fund bigger expansion plans.

The idea that you can borrow at zero cost from banks isn’t realistic, and issuing shares doesn’t let a company dodge taxes. It also isn’t about saving cash by cutting staff; reducing the workforce is a cost-cutting move, not a means to fund growth.