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: Debentures and Financial Instruments
In the context of research-driven companies like LMN Ventures, how can convertible debentures serve as a viable financing option?
Option 1: They offer fixed dividends to investors
Option 2: They allow debenture holders to convert into equity shares
Option 3: They provide guaranteed redemption at maturity
Option 4: They are short-term debt instruments
Correct Answer:
They allow debenture holders to convert into equity shares
Solution : The correct answer is (b) They allow debenture holders to convert into equity shares
Convertible debentures provide flexibility by allowing debenture holders to convert their debentures into equity shares of the company at a predetermined ratio. This is particularly beneficial for research-driven companies as it enables them to attract investors who may be interested in the company's potential growth and success. As the research and development initiatives progress and the company's value potentially increases, debenture holders can convert their debt into equity, thus becoming partial owners of the company and sharing in its future success.
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