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Direction: Read the following text and answer the following questions on the basis of the same:
Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.
Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?
- a)Cash flow position of the company
- b)Cost
- c)Amount of earnings
- d)Taxation policy
Correct answer is option 'B'. Can you explain this answer?
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Direction: Read the following text and answer the following questions...
The cost of raising funds through different sources are different. A prudent financial manager would normally opt for a source which is the cheapest.
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Direction: Read the following text and answer the following questions...
Cost factor in financing decisions:
Factors affecting financing decisions include the cost associated with raising funds. In the given case, the company is considering issuing debentures at a cost of 10% to raise the required funds for expansion. The cost of debt (interest rate on debentures) is a crucial factor that influences the financing decision.
Explanation:
- Cost of financing: The cost of raising capital through debt (in this case, debentures) is 10%, which is the interest rate the company would need to pay on the funds raised. This cost influences the decision-making process as the financial manager aims to choose the cheapest source of financing.
- Comparing options: The company is considering issuing equity shares as an alternative to debentures. The financial manager would need to evaluate the cost of equity financing as well to determine the most cost-effective option for raising the required funds.
- Impact on earnings: The cost of financing directly impacts the company's earnings as higher interest payments reduce the net income available to shareholders. Therefore, the cost factor plays a significant role in determining the financing source.
- Long-term implications: Since the funds are required for long-term investment in modern machinery, the cost of financing becomes crucial as it will affect the company's profitability and financial performance over an extended period.
In conclusion, the cost factor in financing decisions is a critical consideration for companies like Sunrises Ltd. as it directly impacts the overall financial health and profitability of the business in the long run.
Factors affecting financing decisions include the cost associated with raising funds. In the given case, the company is considering issuing debentures at a cost of 10% to raise the required funds for expansion. The cost of debt (interest rate on debentures) is a crucial factor that influences the financing decision.
Explanation:
- Cost of financing: The cost of raising capital through debt (in this case, debentures) is 10%, which is the interest rate the company would need to pay on the funds raised. This cost influences the decision-making process as the financial manager aims to choose the cheapest source of financing.
- Comparing options: The company is considering issuing equity shares as an alternative to debentures. The financial manager would need to evaluate the cost of equity financing as well to determine the most cost-effective option for raising the required funds.
- Impact on earnings: The cost of financing directly impacts the company's earnings as higher interest payments reduce the net income available to shareholders. Therefore, the cost factor plays a significant role in determining the financing source.
- Long-term implications: Since the funds are required for long-term investment in modern machinery, the cost of financing becomes crucial as it will affect the company's profitability and financial performance over an extended period.
In conclusion, the cost factor in financing decisions is a critical consideration for companies like Sunrises Ltd. as it directly impacts the overall financial health and profitability of the business in the long run.
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Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer?
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Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer?.
Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer?.
Solutions for Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer? in English & in Hindi are available as part of our courses for Commerce.
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Here you can find the meaning of Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of
Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer?, a detailed solution for Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer? has been provided alongside types of Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?a)Cash flow position of the companyb)Costc)Amount of earningsd)Taxation policyCorrect answer is option 'B'. Can you explain this answer? tests, examples and also practice Commerce tests.
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