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Dear Tutor,
Can you help me with the following question:Which of the following statements is correct?
a) A rights issue can be used to raise new equity finance
b) Raising finance from an issue of debt can reduce both eps and gearing
c) One result of the work done by M+M is that it is irrelevant how a company is financed.
d) Shareholders usually have the power to increase dividends at AGM of companies.I agree with a) which is the right answer.
But could you please explain why c isn’t right.(c) would only be correct in the absence of tax. When there is tax then the company should be as highly geared as possible.
shareholders can only decrease the amount of dividend to be paid at AGM but doesn’t not have the right to increase it
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