Question

The disadvantages of issuing stock to obtain long-term financing include a possible change in management and...

The disadvantages of issuing stock to obtain long-term financing include

a possible change in management and policies in the company.

the legal obligation to pay dividends if the company is profitable.

a reduction in the market value of the firm's products.

the funds contributed by stockholders must be repaid from after-tax profits.

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Answer #1

Ans) a possible change in management and policies in the company.

Explanation-One of the biggest and well-known disadvantages of issuing stock to obtain long-term financing includes giving investors a piece of control and ownership. Since they also own a small authority in the company, they have the right to demand answers and explanations for the business decisions. They also have the right to decide and vote on problems affecting the company. Hence these powers and actions may lead to changes in management and policies in the company.

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