Question

Identify the source of finance which does not dilute the control, coupon rate is fixed, and it increases the returns to equity. Also, explain any two demerits of the source identified in the above line.

Answer 1

The source of finance which does not dilute the control, coupon rate is fixed, and it increase the returns to equity is debentures. The two demerits of debentures are :

(i) The issue of debenture reduces the borrowing capacity of the business.

(ii) Being fixed charge funds, they are a burden on the earnings of the company.