Question : Case Study: LMN Ventures - Financing Innovation and Research
LMN Ventures is a research-driven technology company aiming to innovate and develop cutting-edge products. The company is exploring various sources of business finance to support its research and development endeavors.
Question:Equity Shares and Preference Shares
What is the main advantage of equity shares for companies like LMN Ventures?
Option 1: Fixed dividend payments
Option 2: Ownership without dilution
Option 3: Higher interest payments
Option 4: No redemption option
Correct Answer: Ownership without dilution
Solution : The correct answer is (b) Ownership without dilution
Equity shares represent ownership in the company, allowing shareholders to have a stake in the business without the obligation of fixed dividend payments. By issuing equity shares, LMN Ventures can raise capital and fund its operations without taking on debt. Additionally, it does not have the obligation to make fixed interest or dividend payments, providing greater financial flexibility. However, it's important to note that issuing equity shares may dilute the ownership stake of existing shareholders, but it does not involve a fixed payment obligation as with debt instruments like debentures.
Question:Different Sources of Finance
What is the primary characteristic of equity shares?
Option 2: Ownership in the company
Option 3: Guaranteed redemption
Option 4: No voting rights
What distinguishes debentures 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
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