Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. the owner-manager (om) would sell a part of his/he

the owner-manager (OM) would sell a part of his/her equity shares to outside investors, mostly because...

50.1K

Verified Solution

Question

Accounting

the owner-manager (OM) would sell a part of his/her equityshares to outside investors, mostly because OM (1) needs externalfunds to finance growth & expansion; (2) wants to reduce therisk of business failure (risk sharing); and (3) enjoys the perksat the expense of outside investors.

(i) Suppose that OM, instead of selling equity shares, decidesto sell unsecured long-term debt like debenture (under the firm'sname). Would reasonable investors in the financial market beinterested in buying the firm's debenture? If not, whynot?  

(ii) Do you think the role of auditors to thosedebenture-holders should be different from that to theequity-holders?

Hint for (i) - In reality, stock IPO (or venture capital) isonly a plausible option for initial external financing for OM. So,short answer to the question would be no (because of marketfailure).

Answer & Explanation Solved by verified expert
3.7 Ratings (698 Votes)
i due to initial external financing for OM reasonable investors wont be interested in buying the firms debenture because it would have already been a wide distribution of power of management and besides this no major investor would have been standing due to    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

which solvent is the best for the analysis of a mixture of ferrocene and acetylferrocene? explain...

Chemistry
Q

QualCo manufactures a single product in two departments: Cutting and Assembly. During May, the Cutting department...

Accounting
Q

a R1 As the position of an object u reflected from a concave mirror is...

Physics
Q

Over what interval s is the graph of the rational function decreasing 4 2 y...

Basic Math
Q

Determine the number of ways to perform the task described Four players are to be...

Basic Math
Q

4 Consider the probability distribution shown here 4 3 2 1 0 1 2 3...

Statistics
Q

Determine whether the equation has a graph that is symmetric with respect to the y...

Algebra
Q

Comparative financial statements for Weller Corporation I can't seem to figure out the Return on...

Accounting
Q

A city orders a new computer for its General Fund at an anticipated cost of...

Accounting
Q

Changes in Current Operating Assets and Liabilities-Indirect Method Blue Circle Corporation's comparative balance sheet for...

Accounting
Q

Help

Accounting
Q

Difend Cleaners has been considering the purchase of an industrial dry?cleaning machine. The existing machine...

Finance