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One traditional source of capital involves retaining the excess of revenues over expenses. The Kay-z Pharmaceutical Company, a for-profit corporation, is a relatively small start-up company. As a start-up, Acme has recorded operating losses for each of its five years of existence. The company now needs to raise more capital for research and development. Will retaining the excess of revenues over expenses be a possible source of capital for Acme?

a. Yes
b. No
c. Not applicable

Sagot :

anthougo

Answer:

Acme Pharmaceutical Company (or is it Kay-z?)

Retaining the excess of revenues over expenses as a possible source of capital for Acme:

c. Not applicable

Explanation:

The retention of retained earnings cannot be applicable in this case because for the past five years of its existence the company had recorded operating losses.  It had not retained any profits so far.  This means that there is no internally-generated source of financing for the company.  It can only rely on outside finance in the form of equity (stockholders) or debt (creditors).

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