BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Which of the following sources of capital should not be selected by a business if its fixed cost is high?
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Equity shares
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Preference shares
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Debentures
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All of the above
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Explanation:
Detailed explanation-1: -Interest on debt have to be paid regardless of whether or not a firm has earned a profit. Also, the borrowed funds have to be repaid at a fixed time. The risk of default on payment is known as financial risk which has to be considered by a firm likely to have insufficient shareholders to make these fixed payments.
Detailed explanation-2: -Fixed assets are not a source of finance for a company.
Detailed explanation-3: -Creditors are not the source of fixed capital.
Detailed explanation-4: -Organisations use debentures when they need to borrow cash at a fixed rate of interest for their development. Hence, debentures are not a part of the owner’s capital.
There is 1 question to complete.