CameraIcon

SearchIcon

MyQuestionIcon

1

You visited us 1 times! Enjoying our articles? Unlock Full Access!

Benefits of Debentures

If a firm has...

Question

If a firm has no preference share capital, financial break-even level is defined as equal to ___________.

A

EBIT

No worries! We‘ve got your back. Try BYJU‘S free classes today!

B

Interest liability

Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses

C

Equity dividend

No worries! We‘ve got your back. Try BYJU‘S free classes today!

D

Tax liability

No worries! We‘ve got your back. Try BYJU‘S free classes today!

Open in App

Solution

The correct option is B Interest liability
Financial break even is a level of profit which covers all the fixed financial charges.It is the level of EBIT where the EPS of the company is zero. The higher is the level, higher is the financial risk for equity shareholders.
if there is no preference share, the company is having only fixed financial cost of interest on debt.

Suggest Corrections

thumbs-up

0

Similar questions

Q. The amount of debt, equity share capital, preference share capital are __________ by financial decisions, which is a part of financial management.

Q. The authorised capital of M Ltd. consists of both cumulative preference shares and equity shares. Each

5

% cumulative preference share has a par value

R s . 100

. Each equity share has a par value

R s . 10

. During the year

2005 - 06

, the cumulative preference share capital was

R s . 2, 00, 000

If dividend declarations totalled

R s . 25, 000

2005 - 06

, the dividends allocated to the equity shareholders in the year

2005 - 06

will be ___________.

Q. The authorized capital of CAS Ltd. consists of both cumulative preference shares and equity shares. Each 5% cumulative preference share has a par value Rs 100. Each equity share has a par value Rs 10. During the year the cumulative preference share capital balance was Rs 4,00,000 and the equity share capital balance was Rs 10,00,000
If dividend declarations totalled Rs 16,000 and Rs 30,000 in the previous year and current year respectively, the dividends allocated to the equity share holders in the current year = ?

Differentiate between equity shares and preference shares on the basis of :

(a) Payment of dividend

(b) Refund of capital

(c) Rate of dividend

(d) Voting Rights

Q. Assertion :Preference shares capital is a more costly source of finance than debentures for profit-earning companies. Reason: Preference dividend is not a charge against profit under the Income Tax Act.

View More

Join BYJU'S Learning Program

similar_icon

Related Videos

lock

What is a Debenture?

ACCOUNTANCY

Watch in App

explore_more_icon

Explore more

Benefits of Debentures

Standard XII Accountancy

Join BYJU'S Learning Program

CrossIcon