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 which 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 - expenses are typically deducted when raising external equity, such as underwriting or legal fees. 
Statement II is incorrect - corporations usually sell securities at market value, and may even have to offer a premium or higher interest rate to attract investors.

The Cost of Internal Equity Is Cheaper Than the Cost