Question

The capital stock increases through investment and decreases through depreciation.

True

False

Answer 1

Soln. Capital stock is defined as the total no of shares, that a company is entitled to divide its ownership. Every shareholder has some share of company's profit, which in other words is described as distributed ownership. With new investment, probability of company's growth is high, which leads to increase in capital stock.On the other hand, depreciation is the rate at which company's goods and capitals need to be replaced. Depreciation is in a way, loss to the company and hence leads to decrease in capital stock. Capital stock growth is directly proportional to the investment and inversely proportional to current capital stock and depreciation rate, hence the stated statement is true.