1financial management, ninth edition © i m pandey vikas publishing house pvt. ltd. kitne source...

1Financial Management, Ninth Edition © I M PandeyVikas Publishing House Pvt. Ltd.

KITNE SOURCE HAIN

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Sources of Funds and Capital Structure


Ordinary Shares–Features Claim on Income Claim on Assets Right to Control Voting Rights Pre-Emptive Rights Limited Liability


Ordinary Shares–Pros and Cons Advantages

1. Permanent Capital

2. Borrowing Base

3. Dividend Payment Discretion

Disadvantages1. Cost

2. Risk

3. Earnings Dilution

4. Ownership Dilution


Right Shares – Pros and Cons Advantages

1. Control is maintained

2. Less flotation cost

3. Issue more likely to be successful

Disadvantages1. Shareholders lose if fail to exercise their right


Debentures–Features

Interest Rate Maturity Redemption Sinking Fund Indenture Security Yield Claim on Assets and Income


Types of Debentures Non – Convertible Debentures Fully – Convertible Debentures Partly – Convertible Debentures


Debentures–Pros and Cons Advantages

1. Less Costly2. No ownership Dilution3. Fixed payment of interest

Disadvantages1. Obligatory Payment 2. Financial Risk3. Cash outflows4. Restricted Covenants


Term Loans–Features Maturity Direct Negotiations Security Restrictive Covenants

1. Asset related covenants2. Liability related covenants3. Cash flow related covenants4. Control related covenants

Convertibility Repayment Schedule


Preference Shares Similarity to Ordinary Shares:

1. Non payment of dividends does not force company to insolvency.

2. Dividends are not deductible for tax purposes.

Similarity to Debentures:1. Dividend rate is fixed.

2. Do not share in residual earnings.

3. Usually do not have voting rights.


Preference Shares–Features Claim on Income and Assets Redemption Sinking Fund Convertibility


Preference Shares–Pros and Cons Advantages

1. Risk less Leverage advantage

2. Dividend postponability

3. Fixed dividend

4. Limited Voting Rights

Disadvantages1. Non-deductibility of Dividends

2. Commitment to pay dividends


Assignment- II :Individual SubmissionOn 12th February

1. Page 442, Ch 20 Review Q1, 4,6 and 92. You have to choose a Public Ltd. Company

and make a one/two page note on its Sources of Funds. (You have to give details on its equity, debt and preference shares- the amount, rate of interest, dividend paid (last year))

3. Make a 1 page summary of the key leanings from the class


Note: Some important points Answers in A4 page – Hand written Individual submission Those who will not submit the assignment within 5

minutes of start of the class will be marked absent See the Assessment Plan on the intranet for other

details Readings (Documents uploaded on intranet, Internet

research, Library and Recommended Books)


Some important points Academic Honesty

Individual Work Only, Allows for Group Discussion of Concepts and Problems

Do Not Copy Work Reference Any Source When Confused Ask InstructorContact me: Rahul Jain (9811228852,

[email protected], Yahooid:rahulkjain16)

mailto:[email protected]

1financial management, ninth edition © i m pandey vikas publishing house pvt. ltd. kitne source...

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