State the effects of over and under capitalization
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Answer: ADVERTISEMENTS: (ii) Shareholders of the company get less dividends. (iv) Prices of company products may go high. (v) Company finds it difficult to raise capital, because in present situation of over-capitalisation, it finds it difficult to pay a fair rate of return to its investors.
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An over-capitalised company may suffer from the following ill consequences or disadvantages: (i) The shares of the company may not be easily marketable because of reduced earnings per share. ADVERTISEMENTS: (ii) The company may not be able to raise fresh capital from the market.
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