The correct answer is: A. increasing the number of equity shares.
Overcapitalization is a situation where a company has too much equity capital relative to its assets and liabilities. This can happen when a company issues too many shares, or when the market value of its shares is too high. Overcapitalization can lead to a number of problems, including:
- A decrease in the return on equity for shareholders.
- Difficulty in raising additional capital.
- A decrease in the company’s creditworthiness.
There are a number of ways to remedy overcapitalization, including:
- Repurchasing shares.
- Paying dividends.
- Issuing debt.
- Selling assets.
Increasing the number of equity shares is the most common way to remedy overcapitalization. This can be done by issuing new shares or by converting debt into equity. Increasing the number of shares dilutes the ownership of existing shareholders, but it also increases the company’s equity capital. This can help to improve the company’s financial position and make it easier for it to raise additional capital.
The other options are not as effective in remedying overcapitalization. Repurchasing shares reduces the number of shares outstanding, which increases the ownership of existing shareholders. However, it does not increase the company’s equity capital. Paying dividends reduces the company’s cash reserves, which can make it difficult for it to raise additional capital. Issuing debt increases the company’s debt load, which can make it more difficult for it to repay its debts. Selling assets reduces the company’s assets, which can make it more difficult for it to generate cash flow.