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Why would a business choose debentures as a source of funding? (A) To reduce financial risk (B) To provide security over assets (C) To retain ownership and control (D) To obtain cheap, short-term finance - HSC - SSCE Business Studies - Question 14 - 2014 - Paper 1
Question 14
Why would a business choose debentures as a source of funding? (A) To reduce financial risk (B) To provide security over assets (C) To retain ownership and contro... show full transcript
Worked Solution & Example Answer:Why would a business choose debentures as a source of funding? (A) To reduce financial risk (B) To provide security over assets (C) To retain ownership and control (D) To obtain cheap, short-term finance - HSC - SSCE Business Studies - Question 14 - 2014 - Paper 1
Step 1
To retain ownership and control
Answer
Businesses often opt for debentures as a funding source because it allows them to raise capital without giving up ownership or control. Unlike equity financing, which dilutes the existing shareholders' ownership, issuing debentures means that the company does not have to provide shares and thereby maintain its control over business decisions. Additionally, the interest on debentures is fixed and does not depend on the company's profitability, making it a strategic choice for many businesses.