Bright Light Co. manufactures electrical appliances. Finance manager of the Company is
looking for a financial instrument which fulfulls his long term finance needs but has Tax
advantage to it. Suggest him which source of finance should he use. Give four advantages
of this source.

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Solution

Dear student
He should use debentures/debt to raise finances.

ADVANTAGES OF DEBENTURES ARE:
1. It has no tax liability, rather it reduces taxes through deductibility of income tax, increasing EPS which makes it an attractive finance option
2. It allows management to retain control of the business, by avoiding takeovers. Also, debt holders can't participate in the business decisions of the firm. Therefore, it doesn't dilute the control of the firm.
3. It is one of the most cheapest sources of finance
4. Floatation cost of debt is cheaper than equity.

Regards

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Bright Light Co. manufactures electrical appliances. Finance manager of the Company is looking for a financial instrument which fulfulls his long term finance needs but has Tax advantage to it. Suggest him which source of finance should he use. Give four advantages of this source.

Bright Light Co. manufactures electrical appliances. Finance manager of the Company is
looking for a financial instrument which fulfulls his long term finance needs but has Tax
advantage to it. Suggest him which source of finance should he use. Give four advantages
of this source.