Paper 1 · November 2023 · Sources of Finance
Which is a benefit to a large manufacturing firm of raising finance through debentures?
ADebentures carry no obligation to pay interest in a loss-making year
BInterest on debentures is a tax-deductible expense and large sums can be raised without diluting ownership
CDebenture holders gain voting rights and a say in how the firm is run
DDebentures never need to be repaid to the lender
Explanation
Debenture interest is a tax-deductible expense, and because debenture holders have no voting rights, large sums can be raised without diluting the existing owners' control. Debenture holders do not gain voting rights, debentures do have to be repaid eventually, and interest must still be paid even in a loss-making year.
Derived from ZIMSEC Business Studies Paper 1, November 2023, Q2