Which of the Following Is NOT a Stated Reason Why

question 8

Multiple Choice

Which of the following is NOT a stated reason why an internal capital market, managed by a firm's headquarters, may be superior to external financing?

• A)External equity financing is problematic because of the information asymmetry problem.
• B)Even if internal and external providers of capital have the same ability to monitor, internal providers will choose to monitor more intensely because they have residual control over the assets, and therefore get more of the gains from monitoring.
• C)If one unit performs poorly, its assets can be redeployed efficiently.
• D)Management is generally better at managing internal (vs.external) equity.

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Definitions:

Rent

The price paid for the use of property or land, typically agreed upon between the owner and the user for a specified period.

Net Wealth

The total value of all financial and non-financial assets owned by an individual or company minus the total of all its outstanding liabilities.

Consumption

The process by which goods and services are used up or utilized, reflecting household spending.

Saving

The process of setting aside a portion of current income for future use.