Which ONE of the following events is not correct in relation to a share issue?Question 7Answera.By engaging in a share issue, the company is engaging in debt financing.b.The company's directors determine if and when shares are to be issued.c.Potential investors apply for shares in the company.d.Shares are allotted to investors
Question
Which ONE of the following events is not correct in relation to a share issue?Question 7Answera.By engaging in a share issue, the company is engaging in debt financing.b.The company's directors determine if and when shares are to be issued.c.Potential investors apply for shares in the company.d.Shares are allotted to investors
Solution
The statement that is not correct in relation to a share issue is:
a. By engaging in a share issue, the company is engaging in debt financing.
This is incorrect because when a company issues shares, it is engaging in equity financing, not debt financing. Equity financing is the process of raising capital through the sale of shares in a company. When shares are sold, the company receives cash to use for its business activities and in return, the investor receives a claim on future profits and assets of the company. This is different from debt financing where a company borrows money and has to repay it with interest.
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