Question

Urban Outfitters wants to raise​ $25 million to finance the construction of a new​ store, and the company wishes to raise the funds through direct finance. Which of the following methods could it​ use? A. It could sell​ $25 million in bonds. B. It could borrow​ $25 million from a bank. C. It could issue​ $25 million in stock. D. It could choose either A or C.

Answer 1

Answer: D. It could choose either A or C.

Explanation: Direct finance involves the borrowing of funds from the financial market without the use of intermediaries. As such, it helps avoid the costs that might be incurred from the use of such intermediaries such as banks, brokers etc. Example of such financing is the issuance of shares, bonds, the purchase of newly issued commercial papers etc. In order to raise $25 million through direct finance to finance the construction of its new store, the company Urban Outfitters can either sell the amount needed to be raised in bonds or it could issue the same amount in stock.