The Primary Disadvantage of Equity Capital Is That the Entrepreneur

question 64

Multiple Choice

The primary disadvantage of equity capital is that the entrepreneur ________.

• A)must repay it at some point with interest
• B)must give up some (perhaps most)of the ownership in the business to outsiders
• C)experiences the disadvantage of the risk/return tradeoff in the form of higher interest rates
• D)B and C above

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Definitions:

Common Stock

A type of equity security that represents ownership in a corporation, giving holders the right to vote on corporate matters and receive dividends.

Par Value

The nominal or face value of a bond, share of stock, or other security, typically set at the time it is issued.

Fair Value

An estimate of the market value of an asset or liability, reflecting what a willing buyer would pay a willing seller in an arm's length transaction.

Stock Issuance Costs

Expenses associated with the issuing of new shares of stock, including legal, accounting, and underwriting fees.