Question

TRUE OR FALSE:

When the entire share capital is raised through equity shares, the benefit of trading on equity is available.

Answer 1

This statement is false.

Explanation:

The benefit of trading on equity (also known as financial leverage) arises only when a company uses debt (like debentures or loans) or preference shares along with equity capital. When the entire capital is raised through equity shares only, there is no fixed interest or dividend to pay, so the benefit of trading on equity (which comes from using fixed-cost funds) is not available.