CIMA F2 Syllabus A. Financing capital projects - Advantages and disadvantages of ordinary shares - Notes
Advantages and disadvantages of ordinary shares as a source of finance
Advantages | Disadvantages |
---|---|
There is no obligation to repay the funds raised through an ordinary share issue. | The cost of equity finance is typically higher than the cost of debt finance because: (i) The administrative costs of issuing shares are expensive (ii) To investors, shares are riskier than debt so shareholders expect a higher return (iii) Dividends paid are not tax deductible whereas interest payments can be used to reduce the company's taxable profits |
The amount and timing of the dividend payments is flexible. | Issuing new shares will typically dilute the control of the original shareholders. |
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Syllabus A. Financing capital projects
A1. Types and sources of long-term funds
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Syllabus A. Financing capital projects
A1. Types and sources of long-term funds