The director of sonika transformers Ltd. Wants to modernize their plant and machinery at the cost of₹25 lakhs the finance manager wants to raise funds for a duration of three years as the company is expecting regular and stable cash flows in medium term the finance manager want to raise funds from a source that do not create any charge on the asset of the company so that the assets can be used as security for raising loans in future if required. (a) Identify the source of finance used by company to meet its funds requirement
Answers
Answer:
The directors should approach to the consultant for new public issue of shares as this is the case of primary market. The stock exchange is only meant for securities already issued. Following are the methods which the company may adopt for the new public issue of shares:
(i) Public Issue: Under this method, the company issues a prospectus and invites the general public to purchase shares or debentures.
(ii) Offer for Sale: Under this method, firstly the new securities are offered to an intermediary (generally firms of stock brokers) at a fixed price. They further resell the same to the general public at a higher price. The advantage of doing this is that the issuing company feels free from the tedious work of making a public issue.
(iii) Private Placement: Under this method, the company sells securities to the big financial institutions or brokers instead of selling them to the general public. They, in turn, sell these securities to the selected clients at a higher price. This method is preferred as it is a cheaper method of raising funds as compared to a public issue.
(iv) Right Issue: This method is used by those companies who have already issued their shares. When an existing company issues new shares, first of all it invites its existing shareholders. This issue is called the right issue. In this case, the shareholder has the right either to accept the offer for himself or assign a part or all of his rights in favour of another.
(v) Electronic Initial Public Issue (e-IPOs): Under this method, companies issue their securities through the electronic medium (i.e., internet). The company issuing securities through this medium enters into a contract with a Stock Exchange. SEBI registered broker have to be appointed for the objective of accepting applications. This broker regularly sends information about it to the company. The company issuing security also appoints a Registrar, who helps in making the issue a success by establishing contact with the stock exchange.