What Is the Primary Drawback of External Equity

question 40

Multiple Choice

What is the primary drawback of external equity?

• A)External equity is expensive because it obligates the firm to pay dividends to shareholders.
• B)Issuing additional shares of stock reduces the earnings per share of the company and usually the value of its shares of stock.
• C)External equity is a complex and risky way to raise capital and is seldom used.
• D)Issuing additional shares of stock has to be approved by existing stockholders who often will not approve.

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Definitions:

Beer

An alcoholic beverage made from the fermentation of malted barley and other cereals, flavored with hops.

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The range of options available for a person or organization to choose from, given their resources and constraints.

Income

Money received, especially on a regular basis, for work or through investments.