Question : Questions : Different Sources of Finance
Statement 1: Retained earnings are an internal source of finance.
Statement 2: Companies utilize retained earnings only for dividend payments.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statements 1 and 2 are true.
Option 4: Both statements 1 and 2 are false.
Correct Answer: Statement 1 is true, and statement 2 is false.
Solution : The correct answer is (a) Statement 1 is true, and statement 2 is false.
Statement 1 is true. Retained earnings are indeed an internal source of finance for a company. Retained earnings represent the accumulated profits that a company has not distributed to its shareholders as dividends but has instead retained to reinvest in the business.
Statement 2 is false. Companies do not utilize retained earnings solely for dividend payments. Retained earnings are a valuable source of funds that can be used for various purposes, including reinvestment in the company for growth, debt reduction, financing new projects, research and development, and other capital expenditures. They are not limited to dividend payments.
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