One advantage of using equity financing is dividends are discretionary, not an obligation like debt financing.A.TrueB.False
Question
One advantage of using equity financing is dividends are discretionary, not an obligation like debt financing.
A. True
B. False
Solution
Answer
The statement presented is True.
When a company opts for equity financing, it raises capital by selling shares of the company. With equity financing, the payment of dividends to shareholders is discretionary, meaning the company can decide whether or not to distribute profits as dividends. This flexibility allows the company to retain earnings for reinvestment or other purposes without facing penalties.
In contrast, debt financing requires regular interest payments and principal repayment, making those obligations mandatory regardless of the company's financial performance. Therefore, the obligation to pay can place a significant strain on a company's cash flow.
In summary, the advantage highlighted in the statement about dividends being discretionary in equity financing is indeed true.
Similar Questions
An advantage of bond financing is that it does not affect shareholder control.Group startsTrue or False
which is NOT a benefit of debt financing from the acquirer’s perspective. A. EPS accretion B. Lower cost of capital C. Return on equity D. Lack of covenants
Debt financing is essentiallyMultiple Choiceborrowing money.selling ownership.borrowing ownership.selling money.the same as stock.
Venture capital firms provide debt funding so the entrepreneur will not have to give up equity.Group of answer choicesTrueFalse
Equity is increased by: Group of answer choices dividends. revenues. expenses. liabilities.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.