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All of the following are major external sources of long-term finance available to companies except: retained earnings ordinary shares finance leases borrowing preference shares

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All of the following are major external sources of long-term
finance available to companies except:
retained earnings
ordinary shares
finance leases
borrowing
preference shares

All of the following are major external sources of long-term finance available to companies except: retained earnings ordinary shares finance leases borrowing preference shares

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PrestonProfessional · Tutor for 6 years

Answer

Retained earnings

Explain

## Step1:<br />The first step is to understand the nature of all the financial categories listed in the question. Long-term finance usually refers to funds acquired in a period greater than one year.<br /><br />## Step2:<br />Upon examining all the choices, we can see that:<br />- Retained earnings refer to the profits obtained from a company, which are then reinvested into the business rather than distributed as dividends. This source of funding is internal, not external.<br />- Ordinary shares represent equity ownership in a company and holders have voting rights. These generate funds that the company does not return, they're an external and long-term source of funds.<br />- Finance leases are also external sources of long-term funds. In a finance lease agreement, a leasee gains certain rights to use a lessor's property in exchange for money over an explicitly stated period.<br />- Borrowing typically refers to loans which is clearly an external source and can be short to long-term based on duration of the loan.<br />- Preference shares are like ordinary shares in that they provide a company with capital reserves, similarly, they are an external, long-term source of funding.<br /><br />## Step3:<br />We can conclude, based on prior analysis, that out of the all the presented options, the one which does not serve as an external source for company’s long-term finance is 'Retained earnings.'
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