Which of the following is not an advantage of raising equity via the issue of ordinary shares?
A)Dividend payment is not an obligation.
B)It reduces borrowing costs.
C)Borrowing entails higher transaction costs than raising equity,as the company has to prepare disclosure documents to attract lenders.
D)None of the given options.

Question

Quizplus · Accepted Answer

Raising equity through the issuance of ordinary shares does not necessarily reduce borrowing costs directly. While it's true that dividends are not obligatory and equity can provide funding without the obligation of repayment, the statement that borrowing entails higher transaction costs than raising equity due to the need for disclosure documents to attract lenders is misleading. Both equity and debt financing can involve significant transaction costs, including the costs of compliance with regulatory requirements and fees for financial and legal advisory services. The key difference lies in the nature of the costs and obligations, not necessarily the magnitude.

Which of the Following Is Not an Advantage of Raising