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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

What is the main advantage of equity shares for PQR Enterprises?

Option 1: Fixed dividend payments
    

Option 2: No dilution of ownership
 

Option 3: Higher interest payments

 

Option 4: Guaranteed redemption


Team Careers360 1st Jan, 2024
Answer (1)
Team Careers360 3rd Jan, 2024

Correct Answer: No dilution of ownership


Solution : The correct answer is (b) No dilution of ownership

Equity shares provide a way for PQR Enterprises to raise capital without incurring debt or having to make fixed payments, thus avoiding the obligation of repayment associated with loans or debentures. Additionally, issuing equity shares does not dilute the ownership stake of existing shareholders. Equity shareholders retain ownership rights and control over the company without a fixed commitment to pay dividends, providing more flexibility in managing the company's finances.

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