JAMB Economics 1992 Question 38

Question 38

Business Organisations

When interest rates are high and still rising the least-cost method used by public limited companies to obtain additional funds for their operations is by

  1. A.obtaining long-term loans from merchant banks
  2. B.obtaining short-term loans from commercial banks
  3. C.selling floating-rate debenture stocks to the general public
  4. D.selling new ordinary shares to the general public
Show the answer and explanation

Answer: D (selling new ordinary shares to the general public)

Explanation

Shares carry no fixed interest, so selling them avoids the high and rising cost of borrowing.