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The financial manager of a well-regarded book publishing firm wishes to buy a small Internet publishing company to provide an avenue for sale of its materials online
The financial manager of a well-regarded book publishing firm wishes to buy a small Internet publishing company to provide an avenue for sale of its materials online. In order to raise the funds to make this purchase, the financial manager decides to sell more stock in the company. How is the financial manager raising funds in this case?
A) By increasing the debt burden carried by the company
B) By raising the company's equity by encouraging new owners to take a stake in the company
C) By decreasing the ratio of equity to debt held by the company
D) By increasing the value of shares held by the existing owners of the company
Expert Solution
The answer is B) by raising the company's equity by encouraging new owners to take a stake in the company.
The company wants to acquire a small Internet publishing company in line with its strategy of organic growth and issues the company shares to the public to fund the purchase. The shareholders are the owners of the company.
Let us analyze other incorrect options.
A) Issuing shares will increase the equity holding, not debt.
C) It will increase the ratio of equity to debt held by the company
D) The face value of shares held by the existing owners of the company will remain the same.
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