Shareholders of a Company May Be Reluctant to Finance Expansion

question 64

Multiple Choice

Shareholders of a company may be reluctant to finance expansion through issuing more equity because

• A) leveraging with debt is always a better idea.
• B) their earnings per share may decrease.
• C) the price of the shares will automatically decrease.
• D) dividends must be paid on a periodic basis.

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Definitions:

Operating Cash Flow

The cash generated by a company's normal business operations, indicating whether a company is able to generate enough positive cash flow to maintain and grow its operations.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, representing how much of the asset's value has been used up over time.

Operating Cash Flow

The amount of cash generated by a company's normal business operations.

Contribution Margin

The amount by which sales revenue exceeds variable costs, used to cover fixed costs and to generate profit.