If a firm finances investment by selling equity,which statement is TRUE?

Question

Quizplus · Accepted Answer

When a firm finances investment by selling equity, it has the choice of paying dividends or retaining earnings for reinvestment. This is in contrast to debt financing, where interest and principal payments must be made regardless of the firm's profitability. Additionally, option A is incorrect as equity holders are not entitled to their share of profits until all other obligations (such as debt payments) have been met. Option B is incorrect as corporations are required to pay corporate taxes on their profits, regardless of how those profits are distributed. Option D is also incorrect as there are significant differences between equity and debt financing in areas such as risk, cost, and control.

If a Firm Finances Investment by Selling Equity,which Statement Is