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Why can firms not just use their own profits for financial capital, with no need for outside investors?
Growing firms are always in need of financial capital to fulfill their short-term needs or to financetheir long-term needs for expansion plans. Firms raises this capital by borrowing money throughbonds, securities, shares, etc.When financial capital is needed by firms then it is possible that firms could use their profits tofinance that need but most of the times firms do not have enough spare money to finance thesecapital needs and when a firm wants to raise capital then there are two basic things that a firmcould do i.e. borrow or sell something.So, firm borrows money either in form of bonds and securities or it sells the small portion of firm'sownership in form of shares.
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Chapter 17
Financial Markets
Introduction
How Markets Work
Topics for Further Study
00:43
Explain why a financial in…
02:02
Why is limited liability m…
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since a perfectly competit…
01:38
Why will profits for firms…
00:57
Why are banks more willing…
07:07
Why is a bond considered t…
00:49
Why will losses for firms …
01:48
Why will firms in most mar…
02:45
Why should a financial inv…
01:08
Many firms in the United S…
03:28
How do the shareholders wh…
01:17
What are the most common w…
02:04
Explain in words why a pro…
00:21
Why do banks charge intere…
0:00
Many workers hold large am…
03:29
Why are firms likely to un…
02:43
If the firms in a monopoli…
01:36
What is the difference bet…
02:35
How does investment as def…
What is limited liability?…
everyone. Today we're solving problem number 10 from chapter 17 of the textbook. Um, And basically, um, the question proposed is all about the capital made by for and why they just can't keep it essentially, um, with outside investors involved. So to answer this question, the real reason why is that some of their profits have to be paid up to stop. I'm going to shareholders as dividends because the investors will expect to receive a regular train. That's basically the reason why. And it could come in two forms. They can make a direct payment to the shareholders for stockholders essentially called the dividend, or they could do cop Okay, But either way, some of the prophet with some of the firm's profits must go to Lester's. Oftentimes that does come simply in the dividend for him. Jesus shareholders themselves, who are the actual investors, and this will always signal or basically to demonstrate that the friend was doing well. And this also encourages, or rather attracts future investment in the future along Previ Investment Capital I. In the future, that's mainly why can't just keep it all. If you guys enjoying my video explanation, preset the like right next to I hope you have a nice day and thank you for watching
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