Question

What are ‘Debentures’? Describe three merits and three limitations of debentures as a source of long-term finance for a company

Answer 1

Answer:

Debentures are long term loans which may be unsecured or secured by a fixed charge over a specific asset which are issued by the company.

Merits:  

1. Investors who want lesser risks prefer them.

2. Companies don’t rely on debentures for profits.

3. Financing through debentures are less costly

Demerits:

1. Each company has a limited borrowing capacity.

2. Repayment has to be on a specified date and cannot exceed it.

3. Debentures may pose risk to companies when their earnings fluctuate.

Answer 2

Answer:

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