Sanjay ltd. Is in the need of funds. The company has analysed various options of procuring funds like issue of equity shares , preference shares, debentures etc. at present the company is not financially strong. It is not able to repay its past loans. Moreover the earnings and operations of company are highly unstable. The company’s financial advisor has suggested not to issue fixed charge securities like preference shares and debentures. It will put burden on the company. The company won’t be able to pay interest amount. It can issue equity shares as the dividend needs to be paid only when it will earn profits and capital will be repaid only at the time of winding up of the company.
Answer the following questions:-
a)what is the financial position of sanjay ltd.
b) why should it issue equity shares?
c) Why should it not issue Debentures?
Answers
Answer:
A) What is the financial position of Sanjay Ltd.
Answer :- Sanjay ltd. Is in the need of funds. The company has analysed various options of procuring funds like issue of equity shares , preference shares, debentures etc. at present the company is not financially strong. It is not able to repay its past loans.
B) Why should it issue equity shares?
Answer:- The company won’t be able to pay interest amount. It can issue equity shares as the dividend needs to be paid only when it will earn profits and capital will be repaid only at the time of winding up of the company.
C) Why should it not issue Debentures?
Answer:- Moreover the earnings and operations of company are highly unstable. The company’s financial advisor has suggested not to issue fixed charge securities like preference shares and debentures. It will put burden on the company.
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