The following statements were included in a report prepared by a financial manager of a company to explain current capital rationing matters in the company: 1. The owners wish to remain in control, and hence do not want to issue any more shares 2. The directors only wish to use retained earnings for finance investment 3. Investors are unable or not willing to invest more equity finance 4. The covenants on existing loans prevent the company from taking out any more loans. Required: Which of the above statements are examples of soft capital rationing? (Provide explanation)
The following statements were included in a report prepared by a financial manager of a company to explain current capital rationing matters in the company: 1. The owners wish to remain in control, and hence do not want to issue any more shares 2. The directors only wish to use retained earnings for finance investment 3. Investors are unable or not willing to invest more equity finance 4. The covenants on existing loans prevent the company from taking out any more loans. Required: Which of the above statements are examples of soft capital rationing? (Provide explanation)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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The following statements were included in a report prepared by a
company to explain current capital rationing matters in the company:
1. The owners wish to remain in control, and hence do not want to issue any more
shares
2. The directors only wish to use
3. Investors are unable or not willing to invest more equity finance
4. The covenants on existing loans prevent the company from taking out any more
loans.
Required:
Which of the above statements are examples of soft capital rationing? (Provide explanation)
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