CAF-7 · Chapter 8 · Question 14 of 15
Which of the following represents the most significant advantage of using 'Retained Earnings' as a source of finance for a company's expansion?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) It is readily available internally, avoids issue costs, and does not dilute the control of existing shareholders
Explanation
Retained earnings are internally generated funds. Using them avoids the high transaction/flotation costs of issuing new shares or debt, and because no new shares are issued, there is no dilution of control for existing owners.
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