Question : Case Study: PQR Enterprises - Funding Strategies for Diversification
PQR Enterprises is a well-established conglomerate planning to diversify its business operations. The company is evaluating various sources of business finance to support its diversification plans.
Questions : Equity Shares and Preference Shares
If PQR Enterprises issues redeemable preference shares, what does this mean?
Option 1: Shareholders can convert shares into debentures
Option 2: Preference shareholders can vote on company decisions
Option 3: The company has the option to buy back the shares
Option 4: Dividends on these shares are fixed and guaranteed
Correct Answer: The company has the option to buy back the shares
Solution : The correct answer is (c) The company has the option to buy back the shares
Redeemable preference shares are those that the issuing company has the option to buy back or redeem after a certain period, as specified in the terms of the share issue. This provides the company with flexibility in managing its capital structure and financial obligations. It does not involve converting shares into debentures, granting voting rights to preference shareholders , or guaranteeing fixed dividends.
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