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Business Studies

Financing Decision

The cheapest ...

Question

The cheapest source of finance is:

A

Equity share capital

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B

Preference share

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C

Retained earning

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D

Debenture

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Solution

The correct option is C
Retained earning

Retained earning is a part of profit which is not distributed among shareholders as dividends but is retained in the business for future use. It is also known as self financing. It is available free of cost for the business.The cheapest source of finance is:

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Similar questions

The cheapest source of finance is

(a) debenture

(b) equity share capital

(c) preference share

(d) retained earning

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.

Q. Assertion :Capital structure refers to composition of long-term funds. Reason: These include equity share capital, preference share capital, debentures, all debts and all reserves.

Q. Statement - I : Capital structure refers to composition of long-term funds.
Statement - II : These include equity share capital, preference share capital, debentures, all debts and all reserves.

Q. Who formulated the following model for estimating the market price of equity share?

P = \frac{D + \frac{R_{a}}{R_{c}} (E - D)}{R_{c}}

P =

Market price of equity share

D = D P S

E = E P S

E - D =

Retained earning per share

R_{a} =

Internal rate of return on investment

R_{c} =

Cost of capital.

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