Which of the following is not considered a capital component?
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A. B. C. D. E.A
The four major capital components are debt, preferred stock, retained earnings, and new issues of common stock.
The question asks which of the following options is not considered a capital component. Capital components refer to the different sources of financing used by a company to fund its operations and investments. Let's analyze each option to determine whether it is considered a capital component or not:
A. All of these are considered capital components: This option states that all the other options listed (preferred stock, common stock, long-term debt, and retained earnings) are considered capital components. If this option is correct, then none of the other options would be the correct answer.
B. Preferred stock: Preferred stock is a type of equity security issued by a company. It represents ownership in the company, but it has characteristics of both debt and equity. Preferred stockholders receive fixed dividends, similar to interest payments on debt, and they have a higher claim on the company's assets compared to common stockholders. Therefore, preferred stock is considered a capital component.
C. Common stock: Common stock represents ownership in a company and gives shareholders the right to vote on company matters and receive dividends. Common stock represents the residual ownership in the company after all other claims have been satisfied. Common stock is a form of equity financing and is considered a capital component.
D. Long-term debt: Long-term debt refers to the borrowing of funds by a company for a period exceeding one year. It includes loans, bonds, and other debt instruments with maturities beyond 12 months. Long-term debt is considered a form of debt financing, and it represents a capital component.
E. Retained earnings: Retained earnings are the accumulated profits of a company that have not been distributed to shareholders as dividends. Retained earnings are considered a part of shareholders' equity and represent the reinvestment of earnings back into the company. Therefore, retained earnings are considered a capital component.
Based on the analysis above, the correct answer is A. All of these are considered capital components.