Correct Answer: Statement 1 is true, and statement 2 is false.
  

Solution : The correct answer is (a) Statement 1 is true, and statement 2 is false.

Statement 1 is true. Financial planning plays a vital role in allocating funds optimally across various activities and departments within a business. It involves budgeting, investment decisions, risk management, and financial resource allocation to achieve organizational goals efficiently.

Statement 2 is false. Financial planning is not solely focused on marketing and sales strategies. While financial planning may encompass aspects related to marketing and sales budgeting, its scope is much broader, covering all financial aspects of a business, including budgeting for operations, investments, expansion, risk management, and more.

Correct Answer: IPO (Initial Public Offering)
 

Solution : The correct answer is (b) IPO (Initial Public Offering)

An IPO is the process by which a company offers its shares to the public for the first time. LMN Enterprises, as a startup, would go through an IPO to raise capital by selling ownership stakes (shares) to a wide range of investors, including individual and institutional investors. The company becomes publicly traded, and its shares are then traded on a stock exchange.

Correct Answer: Debentures pay fixed dividends
   

Solution : The correct answer is (b) Debentures pay fixed interest

Debentures pay fixed interest to the debenture holders, as they are a form of debt and represent a loan from the debenture holder to the issuing company. In contrast, equity shares represent ownership in the company and do not guarantee fixed dividend payments; the dividends paid to equity shareholders are typically based on the company's profitability and decisions made by the board of directors.

Correct Answer: By allowing conversion into equity shares

Solution : The correct answer is (c) By allowing conversion into equity shares

Convertible preference shares grant the shareholder the right to convert these shares into equity shares at a predetermined conversion ratio and within a specified time frame. This allows the preference shareholders to become equity shareholders and participate in the ownership and growth of the company. It provides flexibility to the shareholders while potentially leading to an increase in equity capital for the company if the conversion option is exercised. This is a common way for companies to raise funds while attracting investors. Options a, b, and d are not accurate methods for raising funds through convertible preference shares.

Correct Answer: Debentures

Solution : The correct answer is (c) Debentures

Debentures are long-term debt instruments that companies issue to raise funds. Holders of debentures are creditors to the company and are entitled to receive fixed interest payments and the repayment of the principal amount at maturity. Unlike equity shares, debentures do not represent ownership in the company; rather, they are a form of borrowing for the issuing company.

Correct Answer: To fund expansion projects and investments

Solution : The correct answer is (d) To fund expansion projects and investments

External financing is typically sought to fund expansion initiatives, invest in new projects, acquire assets, enter new markets, develop new products, hire additional staff, or cover increased operational expenses. It provides the necessary capital to support growth strategies and ensure the company's ability to capitalize on opportunities and achieve its long-term objectives. Lowering operational costs, decreasing market share, or enhancing employee satisfaction are not the primary reasons for seeking external financing for growth plans.

Correct Answer: Commercial paper
 

Solution : The correct answer is (a) Commercial paper

Commercial paper is a short-term unsecured promissory note issued by corporations to raise funds quickly. It is a common choice for businesses looking for short-term financing to support various operational needs, including acquisitions. It provides a quick and cost-effective way to access funds, making it suitable for financing acquisition plans in the short term.

Correct Answer: Both enable companies to raise funds in international markets

Solution : The correct answer is (d) Both enable companies to raise funds in international markets

GDRs (Global Depositary Receipts) and ADRs (American Depositary Receipts) serve similar functions in that they both allow companies to raise funds in international markets. GDRs are negotiable financial instruments issued by a depositary bank, typically in a country other than where the issuing company is based. They represent a claim to shares in a foreign company and are traded on international stock exchanges. GDRs enable companies to raise capital from investors in international markets.

ADRs are a specific type of GDR that represents shares of non-U.S. companies traded on U.S. stock exchanges. They make it easier for non-U.S. companies to attract investment from American investors by facilitating trading of their shares in the U.S. financial markets.

Both GDRs and ADRs play a crucial role in allowing companies to access international capital markets and attract investment from a broader investor base outside their home countries.

Correct Answer: Acquiring funds for business operations and expansion
 

Solution : The correct answer is (b) Acquiring funds for business operations and expansion

Business finance involves acquiring the necessary funds and managing financial resources to support a company's day-to-day operations, projects, and future growth. It encompasses activities related to budgeting, financial forecasting, investment decisions, obtaining loans or equity, managing working capital, and overall financial planning to ensure the efficient use of financial resources for achieving the company's objectives.

Correct Answer: Finance Commission

Solution : The correct option is the Finance Commission.

The Finance Commission is a constitutional body set up under Article 280 of the Constitution. After every five years, this commission is to be set up with a chairman along with four members. It is a constitutional body in India that plays a crucial role in fiscal federalism.