To carry out their plans, firms require financing, that is, funds from owners and creditors.When the firm raises funds from owners, which of the following is true?
A)There is no obligation to repay these funds.
B)There is an obligation to repay these funds.
C)Firms must distribute cash dividends to that firm's shareholders at least annually.
D)Firm must distribute stock dividends to that firm's shareholders at least annually.
E)None of the above are true.

Question

Quizplus · Accepted Answer

When a firm raises funds from owners, it typically does so through sales of equity, such as common stock. Equity represents ownership in the firm, and holders of equity do not have a legal obligation to be repaid their investment. Instead, they share in the profits and losses of the firm, and may receive payments in the form of dividends or increased stock value. While firms may choose to distribute cash or stock dividends to shareholders, there is no legal requirement to do so.

To Carry Out Their Plans, Firms Require Financing, That Is