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 : Debentures and Financial Instruments
What does the term "callable" mean in relation to debentures?
Option 1: The company can choose to extend the maturity date
Option 2: The company has the option to buy back the debentures
Option 3: The debentures can be converted into equity shares
Option 4: The debentures are secured by company assets
Correct Answer:
The company has the option to buy back the debentures
Solution : The correct answer is (b) The company has the option to buy back the debentures
When debentures are labeled as "callable," it means that the issuing company has the right, but not the obligation, to buy back or redeem the debentures before their maturity date. Typically, there are specific terms and conditions outlined in the debenture agreement regarding when and how the company can exercise this option to call or buy back the debentures. This provides flexibility to the company to manage its debt and capital structure.
