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5, State and explain the features of Equity shares as a source of finance,, , Ans. Equity shares are the most important long term owners’ funds. Private or Public Limited, smpanies raise funds by issuing equity shares to public., , Features of equity shares are :, (i) All Joint stock companies — public or private — must issue equity shares., (if) Equity shareholders are the owners of business., (iif) They are permanent source of finance., (iv) Rate of return in the form of dividends depends on profits earned., (v) Investment in shares is paid at the time of liquidation of business., (vi) Equity shareholders control the business with right to vote., (vii) Liability is limited to the extent of capital contributed in the form of shares.
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6. Discuss the various characteristics of ‘Debentures’ a main source of long term source of finance., , Ans. Debenture is a document or a certificate issued under the common seal of the company as an, acknowledgment of debt to the holder in accordance to given terms and conditions. It is an external source, of borrowed funds for medium or long medium., , The main features of debentures are :, (i) Debentures represent borrowed funds. They are issued to raise funds for medium and long, term period., {ii) Debentures carry fixed interest rate as return on funds borrowed which is payable at regular, intervals of time., (iii) The repayment period of debentures is pre-determined., (wv) Debentures are secured against the assets of the company.
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7. Discuss the various factors which affect the choice of source of finance., , Ans, , qi), , (ui), , The various factors which govern the selection of source of finance are :, , Cost of finance. Before selecting the source of finance business must compare cost of raising, tunds and the cost of utilizing funds., , Financial strength and stability of operations. Business enterprise must make sure that, it has, sufficient earnings to pay fixed charges and will have sound financial liquidity to repay 2, the time of maturity., , Type of business and legal status. Small businesses have limited options available as compared, to companies operating at large scale., , Purpose and period of time. Business must be clear about the need of finance and the time, period for which it is required., , Risk profile. Business must evaluate its ability to undertake the risk related to payment of, fixed returns and the repayment at maturity, , Control. Business must decide on extend to which it is willing to dilute control on, management of business affairs and the level to which the assets must be mortgaged
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(oti) Effect on credit-worthiness. Business ability to raise funds largely depends on how the business, is financed currently. It may be difficult to raise loans for a business already having too many, secured loans., , (out) Flexibility and ease. The process, procedure, cost and documentation differ from source to, source. A business must try to choose a source, which is simple, faster and flexible.
