Which of the following is the reason why an internally financed company selling its products at a lower price can earn more profit than a competitor who is operating on borrowed money?
A) Investors are more likely to purchase a company's stock if it is internally financed.
B) It is less expensive since no interest expense is involved.
C) The value of stock of an internally financed company is easier to predict.
D) Market forecast is more difficult if a company is operating on borrowed money.
E) Commercial banks do not allow a company to borrow money unless it can provide collateral security.

Question

Quizplus · Accepted Answer

When a company operates on borrowed money, it incurs interest expenses that reduce its profits. On the other hand, an internally financed company does not have such expenses, allowing them to sell their products at a lower price and still earn more profit. Therefore, option B is the correct answer. The other options do not explain why an internally financed company can earn more profit by selling products at a lower price.

Which of the Following Is the Reason Why an Internally