Final answer:
The claim that beginning capital balances used in allocating profits discourage year-end investments is false. Firms may use various methods to raise financial capital, including investments at the end of the year, not necessarily influenced by profit allocation. They raise capital by engaging early-stage investors, reinvesting profits, borrowing, or selling stock.
Step-by-step explanation:
The statement that beginning capital balances used in allocating profits discourage year-end investments is false. Firms invest in capital assets with the anticipation of future profits. These decisions are made irrespective of the method used for profit allocation. Some firms use beginning capital balances for profit allocation, but this does not inherently discourage additional investments at the end of the year. In fact, companies continue to seek financial capital to support their investments and growth, which can include year-end investments.
Firms raise financial capital in various ways such as from early-stage investors, by reinvesting profits, borrowing through banks or bonds, and by selling stock. The choice of when and how much to invest can be influenced by factors such as opportunities for growth, economic conditions, and investment priorities, rather than just the profit allocation method.
If a firm needs funds beyond their profits, they can consider other capital sources. Borrowing funds or issuing bonds are common methods for firms needing to finance large investments at any point in time, including towards the end of the fiscal year. Hence, the timing of investments usually depends on the strategic financial planning of the firm and the economic environment, rather than the discouragement from using beginning balances for profit division.