Question

discuss debentures as a form of a long term financing for a company

Answer 1

A debenture is a type of debt instrument which that is not secured by any collateral. The duration of this instrument is usually more than 10 years. Debentures are backed by the credit worthiness or the reputation of the company.

Convertible VS Non Convertible debentures

Convertible debentures are a mixture of equity and debt instrument as these can be converted into equity instrument of the corporation after a specified period of time. Non Convertible debentures cannot be converted into equity.

Advantages of Debentures

1) Cheaper way of financing

2) Voting rights of the company are not diluted

3) Appropriate way of financing when the company's growth is stable

Disdvantages of Debentures

1) Debentures put a fixed payment burden on the company

2) Company needs to make provisions for repayment for redeemable debenture,