Which of the following benefits directly from any increase in the corporation's profitability?

Question

BlackTom AI · Accepted Answer

To understand which party benefits directly from a rise in the corporation's profitability, consider who gains from higher profits in a straightforward way.
Option a: a commercial paper holder. Commercial paper is short-term, unsecured debt issued by the company. When profitability rises, the immediate beneficiaries are those who own equity, not specifically the creditors holding commercial paper. Their returns are mostly fixed interest via the debt instrument, so the direct benefit is limited here.
Option b: a shareholder. Shareholders benefit directly from higher profitability because it can lead to higher dividends and an increase in the stock’s value. This is a direct economic reward tied to the firm’s ability to generate profits, so shareholders are the primary beneficiaries of improved profitability.
Option c: a T-bill holder. T-bills are issued by the government, not by the corporation. Changes in a single corporation’s profitability do not directly affect T-bill holders, who are concerned with government debt and macroeconomic factors rather than corporate earnings.
Option d: a bond holder. Bondholders receive fixed coupon payments and the return of principal. While higher profitability can raise the firm’s overall credit quality and potentially raise the market price of existing bonds, these effects are indirect and not the direct benefit of the profitability increase itself.
Therefore, the most direct beneficiary of any increase in the corporation's profitability is the shareholder, who directly captures the upside through dividends and stock price appreciation.

Dashboard FINANCIAL MARKETS AND INSTITUTIONS(金融市場與機構) - 2509-BBAZ16201D2-FB6FD9

Which of the following benefits directly from any increase in the corporation's profitability?

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