Question

How would one finance a major expansion

Answer 1

Majorly companies usees funds from three sources for any major expansions.

1. Retained Earnings: These are earnings that accrued over the period of time from the profits. This is the cheapest source of capital

2. Debt Capital: If companies does not have enough accruals, they raise through debt. beacuse of tax advantages the cost of debt lies between cost of retained earnings and cost of raising a new equity.

3. New Equity: Companies can raise capital by selling off ownership stakes in the form of shares to investors who become stockholders. This is known as equity funding. Its cost of capital is highest beacsue of lot of flotation costs exists.