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Which three sources supply a firm with equity financing?
ABank loans, bonds and mortgage borrowings
BTrade credit, factoring and commercial paper
CNew shares, retained earnings and venture capital
DLines of credit, term loans and revolving credit
Answer & Solution
Correct answer: C. New shares, retained earnings and venture capital
1. Equity refers to the owners' investment in the business.
2. A firm obtains it by selling new ownership shares, which is external financing.
3. It also obtains it by retaining earnings, which is internal financing.
4. Small, growing and typically high-tech companies can raise it through venture capital, another external source.
5. Bank loans, bonds and trade credit are all debt, so they create obligations to repay rather than shares in ownership.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.5 Equity Financing_
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