Shareholders of a company may be reluctant to finance expansion through issuing more equity because
A) leveraging with debt is always a better idea.
B) their earnings per share may decrease.
C) the price of the shares will automatically decrease.
D) dividends must be paid on a periodic basis.

Question

Quizplus · Accepted Answer

Issuing more equity can dilute the ownership percentage of existing shareholders and potentially decrease earnings per share (EPS) if the additional capital does not lead to a proportional increase in profits. This is because the profit is now divided among a larger number of shares.

Shareholders of a Company May Be Reluctant to Finance Expansion