23.6. Sources of Finance

Try these first

1. 1.

   What is equity capital?

   Hint

   Think of ownership.

2. 2.

   What does debt capital involve?

   Hint

   Consider loans or credits.

3. 3.

   What is equity capital?

   • Funds from loans
   • Long-term funds from owners
   • Short-term funds for operations

   Hint

   Think ownership.

4. 4.

   Is retained earnings an external source of finance?

   • True
   • False

   Hint

   Think of where the profits go.

5. 5.

   Assess a company's decision to favor equity financing over debt. Discuss the implications for ownership and financial risk.

   Hint

   Consider the trade-offs of control and risk.

6. 6.

   Evaluate a scenario where a company has high retained earnings but chooses not to invest in new projects. What would be the consequences?

   Hint

   Reflect on opportunity costs.