Question : Case Study: UVW Industries - Sustainable Financing for Green Initiatives
UVW Industries is a company committed to sustainable practices and is undertaking environmentally friendly initiatives. The company is exploring various sources of business finance to support its green projects.
Questions : Different Sources of Finance
How do debentures differ from equity shares in terms of ownership and returns?
Option 1: Debentures provide ownership rights
Option 2: Debentures pay fixed dividends
Option 3: Equity shares have fixed interest rates
Option 4: Equity shares represent short-term borrowing
Correct Answer:
Debentures pay fixed dividends
Solution : The correct answer is (b) Debentures pay fixed interest
This statement is correct. Debentures pay fixed interest to debenture holders, not dividends. The interest rate is predetermined and agreed upon at the time of issuing the debentures. Debentures are considered to be a safer investment than equity shares, as debenture holders have a higher claim on the company's assets in the event of liquidation. However, this also means that debenture holders earn a lower return than equity shareholders.
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