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Which of the Following Statements Is TRUE About Sources of Finance Used by Companies: Small and Medium-sizes Companies Cannot Casily

Question

Which of the following statements is TRUE about sources of finance used by companies: Small and medium-sizes companies cannot casily afford the costs of obtaining a public listing on the Stock Exchange. Share issue (cquitylis considered an internal source of finance for the company as the shareholder become owners Retained earnings are a long-term external source of finance available for the company. Interest and dividend payments on debt and equity are tax-deductible.

Answer

4.1 (143 Votes)
Verificación de expertos
Ava Elite · Tutor for 8 years

Answer

Statement 1 is TRUE.

Explanation

## Step 1: We need to carefully read and understand the implications of each statement given in the question. ## Step 1.1:Statement 1 -- Small and medium-sized companies cannot easily afford the costs of obtaining a public listing on the Stock Exchange: It is a general fact that the cost of going public is often very high due to listing costs, regulatory concerns, final reporting mechanisms, scrutiny by investors, and festivities related to ringing the bell for start trading. This is true since small and medium-sized companies often cannot absorb these costs.## Step 1.2:Statement 2 -- Share issue (equity) is considered an internal source of finance for the issuing company because shareholders become the owners of the issuing company: Actually, equity finance should be counted as an external source because the funds come from outside (even though they are now made as part owners of the company).## Step 1.3:Statement 3 -- Retained earnings are a long-term external source of finance available for the company: this is FALSEstion: Retained earnings are internal because they're part of the company's earnings that have been held (i.e. not given as dividends). ## Step 1.4:Statement 4 -- Interest and dividend payments on debt and equity are tax-deductible: this is again FALSE. While it's partially true that interest repayments relating to loans (debt source) are tax-deductible, they acquire substance only partially as dividends paid (equity source) aren’t deductible.