Sale of Capital Stock: a way to obtain capital through the sale of stock to individual investors beyond the scope of one's immediate acquaintances. Periods of high interest rates turn entrepreneurs to this equity market. This involves, of necessity, a dilution of ownership, and many owners are reluctant to take this step for that reason. Whether the owner is wise in declining to use outside equity financing depends upon the firm's long-range prospects. If there is an opportunity for substantial expansion on a continuing basis and if other sources are inadequate, the owner may decide logically to bring in other owners. Owning part of a larger business may be more profitable than owning all of a smaller business.

All of the following can be inferred EXCEPT

(A) it would not in general include sale of equity to a family member.
(B) if the level of interest to be paid is low, some capital owners might prefer other means of raising capital.
(C)small business owners are often less profitable than larger businesses.
(D) a firm with a moderate long-term growth potential could be better off not selling its capital stock
(E) the owner's control of company decisions may lessen should he choose to sell.

Okay, so I got B, but that answer is wrong. The reason I chose it was because I thought that if interest rates are high then the company will have to pay more out. So when the interest rates are low then naturally don't you actually want to sell instead of raising capital some other way?

The correct answer is (C)

Their explanation is this:

The passage says "Owning part of a larger business may be more profitable than owning all of a smaller business", but the answer choice goes too far.