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Chapter 17: Q 10. (page 426)

Why can firms not just use their own profits for

financial capital, with no need for outside investors?

Short Answer

Expert verified

Because it disrupt the cycle of earning profits.

Step by step solution

01

Step 1. Definition

An investor is a person that gives capital with the assumption of a future financial profit or gain.

02

Step 2. Explanation

If the firms don’t allow the shareholders and investors to invest in the firm and used their own capital, they might not be able to earn the desired profits. Because this is a financial cycle as investors invest in the firm, they get the dividend which tells that firm is healthy and will earn more profits in the future so they will invest more funds in the firm, and in return, the firm will earn more profits through more investments.

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Most popular questions from this chapter

The Darkroom Windowshade Company has

100,000 shares of stock are outstanding. The investors in the firm own the following numbers of shares: investor 1 has 20,000 shares; investor 2 has 18,000 shares; investor 3 has 15,000 shares; investor 4 has 10,000 shares; investor 5 has 7,000 shares, and investors 6 through 11 have 5,000 shares each. What is the minimum number of investors it would take to vote to change the company's top management? If investors 1 and 2 agree to vote together, can they be certain of always getting their way in how the company will be run?

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