Question

13 Chemline Itd. is a company engaged in the
manufacturing of chemicals. The company is planning
to expand its business. For this, it needs to raise funds
of 500 crores. After analysing, Sourabh finance mgr of
the company proposed to raise the funds through issue
of debentures. He also gave number of reasons for his
choice . After listening to all the points put forward by
him , the managing director of the company is fully
satisfied and asked to go ahead with the issue.
Discuss the reasons which might have been given by
Sourabh which convinced the managing director to go
for issue of debentures (any four)

Answer 1

Answer:

Higher EBIT

less floatation cost

good cash flow conditions

less time need to raise fund

return is higher, etc

please mark my answer as brainliest

Answer 2

Following are the reasons for which the finance manager proposed to raise the funds through debentures.

Merits of "Debentures":

• Debentures are liquid instruments and can be traded on the stock exchange.
• As debenture holders are the creditors of the company, they do not hold any voting rights. Hence the interest of the equity shareholders is not diluted and the directors can ensure financial protection.
• As debentures do not increase the ownership of the company, the profit-sharing remains the same.
• Debentures provide a way for the long-term growth of the business at a low cost.
• In comparison to issuing shares, issuing debentures is less costly since the interest payment on debentures is tax-deductible.