Which option could dilute ownership by issuing new shares?

• A. Grants from government
• B. Retained earnings
• C. Loan capital and a potential new share issue
• D. Trade finance

Answer: (C)

The main concept here is ownership dilution, which happens when new shares are issued. Diluting ownership means increasing the total number of shares so that each existing shareholder owns a smaller percentage, unless they buy additional shares to maintain their stake.

Grants from the government, retained earnings, and trade finance all involve non-equity financing. Government grants don’t create new owners, retained earnings are profits kept in the business, and trade finance is typically debt used for short-term needs. None of these introduces new equity into the company.

The option that includes a potential new share issue does exactly that: it contemplates issuing additional shares, which would add new owners and reduce each existing shareholder’s percentage stake if they don’t subscribe. So this could dilute ownership, making it the best choice.