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Question text Which of the following is not a source of finance for new ventures? Select...

Question text Which of the following is not a source of finance for new ventures? Select one: a. Funds from venture capitalists b. Rights Issue c. Initial public offerings (IPO) d. Loans from banks

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Answer #1

The correct option is b. Rights Issue.

Reasons:

1. An rights issue is a right given by the company (note right not an obligation) to its existing shareholders to purchase additional shares of the company at a discount (Lower than markket price). Since in case of new venture the share holders are generally very limited in number and in their ability to put more money in the company, rights issue for a new venture is not possible.

2. Rights issue is generally made by those companies which have large number of shareholders since that increases the probability of raising capital through RIghts issue but since new venture have few shareholders in the begining RIghts Issue cannot be a source of finance for them.

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