The Dilutive Effect of a Share Issue Occurs Because

question 94

Multiple Choice

The dilutive effect of a share issue occurs because:

• A) earnings fall initially.
• B) the number of shares increase.
• C) of the capital raised.
• D) share equity becomes more significant relative to debt.

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Definitions:

Substitution Effect

The substitution effect describes the change in consumption patterns due to a shift in prices, leading consumers to substitute a cheaper product for a more expensive one.

Income Effects

Changes in consumers' purchasing power and consumption patterns that occur due to changes in their income, influencing how much of a product they can buy.

Indifference Curve

A graph representing different bundles of goods between which a consumer is indifferent, showing the combination of two goods that give the same level of satisfaction to the consumer.

Marginal Utility

The change in total utility a person receives from consuming an additional unit of a good or service.