Practicing Success

Target Exam

CUET

Subject

Business Studies

Chapter

Financial Management

Question:

Debt normally does not cause............

Options:

A dilution of control

A dilution of flexibility

A dilution of cost

A dilution of equity

Correct Answer:

A dilution of control

Explanation:

Debt normally does not cause a dilution of control. A public issue of equity may reduce the managements’ holding in the company and make it vulnerable to takeover. This factor also influences the choice between debt and equity especially in companies in which the current holding of management is on a lower side.