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Equity Markets and Portfolio Analysis by R. Stafford Johnson

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CHAPTER 4 Equity Securities, Markets, and Trading

Introduction

Major corporations can be viewed as perpetual investment machines: constantly developing new products and technologies, regularly expanding their markets, and from time to time acquiring other companies. To finance these investments, corporations obtain funds both internally and externally. With internal financing, companies retain part of their earnings that otherwise would go to existing shareholders in the form of dividends, whereas with external financing, companies generate funds from outside by selling new shares of stock, selling debt instruments, or borrowing from financial institutions. From the corporation's perspective, decisions on internal versus external financing ...

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