Economics · Sources of Long-Term Finance
A listed manufacturing company needs to raise ₹50,00,00,000 of additional long-term funds to strengthen its Net Working Capital base. To minimize its cost of capital and avoid diluting control among outsiders, the company decides to issue Rights Debentures. What is the key characteristic of this financing method?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It is a hybrid instrument that allows all employees to subscribe, thus aligning corporate interests.
- 2It is a long-term debt instrument offered to existing shareholders on a pro-rata basis, often at a discount.✓
- 3It is a long-term debt instrument that offers a preferential conversion into equity shares.
- 4It is a source of short-term, unsecured funds from the public market, similar to Commercial Paper.
Correct answer
It is a long-term debt instrument offered to existing shareholders on a pro-rata basis, often at a discount.
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