ASSIGNMENT SOURCES OF BUSINESS FINANCE OWNER’S FUND

1. Anshuman has successfully run a financial consultancy firm for the past five years.His company has
become popular and enjoys a good reputation. It has sufficient reserves of profits accumulated from the last
five years. He plans now to start branches in Bangalore and Mumbai. For expanding business does not want
any additional liability.In the above context-
a) Suggest the source of finance suitable to Anshuman for expansion.
b) Give any two merits and two demerits of the source identified in the part (a).

2. State with the reasons whether the following statement are True OR False:
a) Equity shareholders are given a dividend irrespective of whether the company has earned
profit or not.
b) Retained Earning can be used both by new as well old companies.
c) Preference share create a charge on the assets of the company
d) Equity capital is a permanent source of capital for the company.
e) It is a permanent source of funds.
f) Their holders do not enjoy voting rights though they are owners of the company.
g) In case of winding up of the company, the capital is refunded after payment of debentures but
before payment of equity shares.
h) It refers to that part of profits which is kept as reserves for use in future.
i) It is the cheapest source of internal financing.
j) It is a permanent source of funds which is not redeemed during the lifetime of the company.

3. Pluto Electricals Ltd. has been successfully manufacturing electrical accessories for the past ten
years. As the profit margin is good, the company has been managing all the financial requirements of
the business through the profits reinvested in the business.
Identify the source of finance being mentioned in the given case and state its four merits.

4. Mayank has surplus money of Rs.25,00,000, which he wants to invest either in equity shares or in
preference shares. Two real estate companies (Magic Estate and Skylark Enterprises), with almost the
same creditworthiness, are launching their public issue. Magic Estate is coming up with a public issue of
preference shares, while Skylark Enterprises is coming up with equity shares. Mayank is confused about
the two issues. He consulted his friend Gaurav, who is a portfolio manager Gaurav convinced him to
invest the money in Magic Estate due to ‘Preferential Rights’ of preference shareholders over equity
shareholders.
State the ‘Preferential Rights’ stated by Gaurav, which convinced Mayank to invest in Magic Estate.

5. ABC ltd. is planning to expand their business and need money. The finance manager reported that
company is not in position to bear extra burden of paying interest and equity shareholders insisted not
to issue more shares as their is risk of losing control on issue of new shares in the market.
a) Suggest a source of the owner's fund suitable in the above case.
b) State any three merits and three demerits of the source identified in part (a)