Question

Which one of the following is NOT the disadvantage of raising funds through debentures ?

1 point

No dilution of control

Charge on assets

Fixed obligation

All of the above

Clear selectio​

Answer 1

Answer:

charge on assest

Explanation:

this is not disadvantage

Answer 2

The correct answer is OPTION 2: Charge on assets.

• Debentures have some drawbacks as a source of capital:

1. Interest payments are required by debentures, which could be a concern if the company is losing money.
2. Because they are fixed-charge securities, debentures are long-term financial liabilities for a corporation.
3. There is a greater risk when a company's earnings fluctuate; with redeemable debentures, the company must plan for repayment on the designated date, even if it is in financial distress; and debentures are issued to allow companies to trade on their stock, but relying on them too heavily increases the company's financial risk.
4. Each business can only borrow a fixed amount of money.
5. Debentures restrict a company's borrowing power.
6. A company's earnings plummet during a depression, making interest payments even more difficult.