The cost of internal equity is cheaper than the cost of external equity. Which of the following statements is (are) correct?
I. External equity may incur expenses that are deducted from the capital received for the sale of the
Security.
II. Corporations generally discount the price of the securities that are sold to the public in order to raise
Capital.

Question

Quizplus · Accepted Answer

Statement I is correct because expenses such as underwriting fees, legal fees, and other costs may be incurred when issuing external equity that could reduce the capital received. Statement II is not necessarily true as corporations may not always discount the price of securities sold to the public.

The Cost of Internal Equity Is Cheaper Than the Cost