Redeemable Preference Shares and New Issue of Shares

Redeemable Preference Shares

Redeemable preference shares are a type of preference shares that can be redeemed or repurchased by the company at a specific date or within a specific period. These shares are issued at a fixed rate of dividend and have priority over the equity shares in terms of payment of dividend and repayment of capital.

In this case, the company has issued redeemable preference shares worth Rs. 50,000. These shares will be redeemed or repurchased by the company at a specific date or within a specific period.

New Issue of Shares

The company has also issued new shares worth Rs. 30,000 at a discount of 10%. This means that the new shares are issued at a price of Rs. 27,000 (Rs. 30,000 - 10% discount of Rs. 3,000).

The purpose of issuing new shares may be to raise additional capital for the company or to improve the liquidity of the existing shares.

Impact on the Company

The issuance of redeemable preference shares and new shares at a discount will have the following impact on the company:

- Increase in capital: The issuance of new shares will increase the capital of the company by Rs. 27,000.
- Increase in liquidity: The issuance of new shares may improve the liquidity of the existing shares as there will be more shares available for trading in the market.
- Increase in debt: The issuance of redeemable preference shares will increase the debt of the company as the company will have to repay the capital amount to the shareholders at a later date.

Conclusion

Issuing redeemable preference shares and new shares at a discount is a common strategy used by companies to raise capital and improve liquidity. However, it may also increase the debt of the company in the long run. The company should carefully evaluate the pros and cons of such a strategy before implementing it.