Leasing company (lessor) owns the equipment and hires it out to the customers (lessee pays rental income to hire assets). Which deposits are directly raised from the public? The normal business operations may be affected if lease is not renewed. II. Why do businesses need funds? Answer: Public deposits are the deposits raised by organizations directly from the public. Stay tuned to BYJU'S to learn more. Explain in detail the types of debenture a company can issue. (a) Preference shares (b) Commercial paper Answer: Retained Profits: For any company, the amount of earnings retained within the business has a direct impact on the amount of dividends. Specify the objective of I.D.B.I. Merits : The merits of retained earning as a source of finance are as follows : Retained earnings are a permanent source of funds available to an organisation. View Homework Help - Chapter 11 Class Work from CIS 315 at Saint Leo University. Hence the companies issuing them enjoy (a) the prestige associated, Interest rate is generally lower compared to others like bank loans and other types of short term financing. As with ordinary shares a preference dividend can only be paid if sufficient distributable profits are available, although with ‘cumulative’ preference shares the right to an unpaid dividend is carried forward to later years. (ii) It does not involve any explicit cost in the form of interest, or floatation cost. Answers: It enhances the capacity of the business to absorb unexpected losses. (a) Produces and distributes the goods or services However, it is true that the use of retained earnings as a source of funds does not lead to a payment of cash. Advantages of Retained Earnings. A lessee agreement imposes restrictions on usage of assets. What is debenture? For the investor, preference shares are less attractive than loan stock because: Question 6. Merits of Lease financing. 1,00,000 for investment purposes. Question 1. Answer: Following factors responsible for selecting a source of finance: Question 8. Redeemable preference shares are normally treated as debt when gearing is calculated. Question 1. However, it is true that the use of retained earnings as a source of funds does not lead to the payment of cash. Name any three special financial institutions and state their objectives. State various sources of long term funds. (b) Generated through loans from commercial banks Middle term credit sources include loans from banks, public deposits, loans from financial institutions and lease financing. Assets of the company cannot be mortgaged in favor of shareholders. In books of accounts they are shown as “creditors’ or ‘ills payable’. (a) Share profits earned by the lessor Answer: A large industrial enterprise can raise capital from the following sources. Name zones of the Lessors and Lessees in India. Retained earnings is the part of profits of the company that is retained out of profits of the company for future use thus reinvestment also called ploughing back of profits or retention of profit. Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue. It may result in higher payout obligations in case the equipment is not found useful and the lessee chooses for premature termination of the lease contact. It enhances capacity of the business to absorb unexpected losses. 2. Generally, these funds are for working Capital and fixed asset purchases or allotted for debt obligations.. Justify your answer. Posted by Being Commerce; Comments 0 comment; Today we are going to discuss the new chapter of business studies CBSE class 11 that is the sources of business finance. What are Retained Earnings? Question Bank Solutions 6793. These retained earnings are often reinvested in the company, such as through research and development, equipment replacement, or debt reduction. The merits of retained earning as a source of finance are as follows: (i) Retained earnings is a permanent source of funds available to an organisation; (ii) It does not involve any explicit cost in the form of interest, dividend or floatation cost; The dividend yield traditionally offered on preference dividends has been too low to provide an attractive investment compared with the interest yields on loan stock in view of the additional risk involved. Redeemable, issuing preference shares are normally treated as debt when gearing calculated! Over the issue of these shares before any dividend on equity shares public. Through issue of equity shares are the main differences between a debenture and a share: Question.... Of adequate funds are generated internally consists of 10 % debt of Rs.20,00,000, 8 % preference capital! 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