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What may be the effect of a fresh issue of equity on control?

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Question

What may be the effect of a fresh issue of equity on control?

Options

  • It requires principal to be repaid at the agreed time

  • It normally does not dilute ownership control

  • It creates compulsory interest payments

  • It may dilute control of existing shareholders

MCQ
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Solution

A fresh issue of equity may dilute the ownership and control of existing shareholders. Control considerations therefore affect the choice between equity and debt.

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