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Foundations Of Financial Management
Found in: Page 471
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

Do corporations rely more on external or internal funds as sources of financing?

Corporations rely more on external funds than internal as sources of financing.

See the step by step solution

Step by Step Solution


In terms of corporate, funds refer to the pool of money collected or raised by its management to carry out its business activities.

A corporation can gather funds from internal and external sources.

Reliability on funds

Corporations often rely more on external funds because it facilitates them to speed up their operations without using their retained earnings and other profits.

In addition, external funds are a great source of capital for corporations, and it improves the view of positional statements.

Most popular questions for Business-studies Textbooks

Question: The Bailey Corporation, a manufacturer of medical supplies and equipment, is planning to sell its shares to the general public for the first time. The firm’s investment banker, Robert Merrill and Company, is working with Bailey Corporation in determining a number of items. Information on the Bailey Corporation follows:

Bailey corporation

Income statement

For the year 20X1

Sales (all on credit)


Cost of goods sold


Gross profit


Selling and administrative expenses


Operating profit


Interest expense


Net income before taxes




Net income


Bailey corporation

Balance sheet

As of December 31, 20X1


Current assets:



Marketable securities


Accounts receivables




Total current assets


Net plant and equipment


Total assets


Liabilities and stockholders’ equity

Current liabilities:

Accounts payable


Notes payable


Total current liabilities


Long-term liabilities


Total liabilities


Stockholder’s equity:

Common stock (1,800,000 shares at $1 par)


Capital in excess of par


Retained earnings


Total stockholder’s equity


Total liabilities and stockholder’s equity


d. Now assume that, of the initial 800,000 share distribution, 400,000 belong to current stockholders and 400,000 are new shares, and the latter will be added to the 1,800,000 shares currently outstanding. What will earnings per share be immediately after the public offering? What will the initial market price of the stock be? Assume a price-earnings ratio of 12, and use earnings per share after the distribution in the calculation.


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