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Why debentures are cheap soures of finance

Posted by Jashanpreet Kaur 4 years, 3 months ago

CBSE > Class 11 > Business Studies

1 answers

Gaurav Seth 4 years, 3 months ago

The cost of debt capital, represented by debentures is lower than the cost of preference or equity capital. This is because the interest on debentures is tax deductible and hence it helps in increasing the rate of return. Thus debenture issue is a cheaper source of finance.
The fixed monetary payment associated with debentures is interest. This fixed return appeals to many investors, since they are not affected by the fluctuating fortunes of the company.

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