The financial manager of a well-regarded book publishing firm wishes to buy a small internet publishing company to provide an avenue for sale of its materials online. In order to raise the funds to make this purchase, the financial manager decides to sell more shares in the company. How is the financial manager raising funds in this case?

Question

Quizplus · Accepted Answer

The financial manager is raising funds by selling more shares in the company, which increases the company's equity by encouraging new owners to take a stake in the company. This is known as equity financing. Option A is incorrect because increasing the value of shares held by existing owners does not raise funds for the company. Option B is incorrect because increasing debt burden would mean the company is taking on more debt, not raising funds through share offerings. Option C is incorrect because decreasing the ratio of equity to debt would mean the company is taking on more debt, not raising funds through share offerings.

The Financial Manager of a Well-Regarded Book Publishing Firm Wishes