Question : Case Study: ABC Corporation - Financing Growth Strategies
ABC Corporation, a leading manufacturing company, is looking to finance its growth strategies. The company is exploring various sources of business finance to achieve its expansion goals.
Questions : Equity Shares and Preference Shares
How can ABC Corporation raise funds by issuing convertible preference shares?
Option 1: By selling shares at a discount
Option 2: By converting them into debentures
Option 3: By offering them only to employees
Option 4: By allowing conversion into equity shares
Correct Answer: By allowing conversion into equity shares
Solution : The correct answer is (d) By allowing conversion into equity shares
Convertible preference shares grant the holder the option to convert these shares into equity shares at a predetermined conversion ratio and within a specified time frame. This mechanism 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 also potentially leading to an increase in equity capital for the company if the conversion option is exercised.
