Identify the correct statements in context of equity financing.

A. Borrowing limit increases as a consequence of increase in number of shares.

B. Ordinary shares are generally not redeemable.

C. Issue of new shares dilutes the EPS if the profits do not increase immediately in proportion to increase in number of shares.

D. A company is not legally oblidged to pay dividend.

E. Ordinary shares are less riskier from investor's perspective.

Choose the correct answer from the options given below:

The correct answer is A, B, C, D only.

Key Points 

A. When a company issues new shares, it increases its equity base. This increase in equity can provide the company with a stronger financial position, allowing for potentially higher borrowing limits since lenders often consider a company's equity as a measure of stability.

B. Ordinary shares, also known as common shares, are typically not redeemable. Unlike certain types of preferred shares or bonds, ordinary shares do not have a fixed maturity date or an obligation for the company to repurchase them from shareholders.

C. The issuance of new shares can dilute the earnings per share (EPS) if the company's profits do not increase proportionally. When additional shares are issued, the earnings are distributed over a larger number of shares, which can result in a decrease in EPS unless the profits increase to compensate for the dilution.

D. Companies are not legally obliged to pay dividends to their shareholders. While dividends are often distributed as a way to share profits with shareholders, the decision to pay dividends lies with the company's management and board of directors. They assess various factors such as financial performance, cash flow, and future growth opportunities before deciding to pay dividends.

Therefore, the correct answer is:

A. Borrowing limit increases as a consequence of an increase in the number of shares.
B. Ordinary shares are generally not redeemable.
C. The issue of new shares dilutes the EPS if the profits do not increase immediately in proportion to the increase in the number of shares.
D. A company is not legally obliged to pay dividends.