1. 1Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. KITNE SOURCE HAIN ---------------

2. Sources of Funds and Capital Structure

3. 3Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Ordinary Shares–Features Claim on Income Claim on Assets Right to Control Voting Rights Pre-Emptive Rights Limited Liability

4. 4Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Ordinary Shares–Pros and Cons Advantages 1. Permanent Capital 2. Borrowing Base 3. Dividend Payment Discretion Disadvantages 1. Cost 2. Risk 3. Earnings Dilution 4. Ownership Dilution

5. 5Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Right Shares – Pros and Cons Advantages 1. Control is maintained 2. Less flotation cost 3. Issue more likely to be successful Disadvantages 1. Shareholders lose if fail to exercise their right

6. 6Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Debentures–Features Interest Rate Maturity Redemption Sinking Fund Indenture Security Yield Claim on Assets and Income

7. 7Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Types of Debentures Non – Convertible Debentures Fully – Convertible Debentures Partly – Convertible Debentures

8. 8Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Debentures–Pros and Cons Advantages 1. Less Costly 2. No ownership Dilution 3. Fixed payment of interest Disadvantages 1. Obligatory Payment 2. Financial Risk 3. Cash outflows 4. Restricted Covenants

9. 9Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Term Loans–Features Maturity Direct Negotiations Security Restrictive Covenants 1. Asset related covenants 2. Liability related covenants 3. Cash flow related covenants 4. Control related covenants Convertibility Repayment Schedule

10. 10Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Preference Shares Similarity to Ordinary Shares: 1. Non payment of dividends does not force company to insolvency. 2. Dividends are not deductible for tax purposes. Similarity to Debentures: 1. Dividend rate is fixed. 2. Do not share in residual earnings. 3. Usually do not have voting rights.

11. 11Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Preference Shares–Features Claim on Income and Assets Redemption Sinking Fund Convertibility

12. 12Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Preference Shares–Pros and Cons Advantages 1. Risk less Leverage advantage 2. Dividend postponability 3. Fixed dividend 4. Limited Voting Rights Disadvantages 1. Non-deductibility of Dividends 2. Commitment to pay dividends

13. 13Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Assignment- II :Individual Submission On 12 th February 1. Page 442, Ch 20 Review Q1, 4,6 and 9 2. You have to choose a Public Ltd. Company and make a one/two page note on its Sources of Funds. (You have to give details on its equity, debt and preference shares- the amount, rate of interest, dividend paid (last year)) 3. Make a 1 page summary of the key leanings from the class

14. 14Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Note: Some important points Answers in A4 page – Hand written Individual submission Those who will not submit the assignment within 5 minutes of start of the class will be marked absent See the Assessment Plan on the intranet for other details Readings (Documents uploaded on intranet, Internet research, Library and Recommended Books)

15. 15Financial Management, Ninth Edition © I M Pandey Vikas Publishing House Pvt. Ltd. Some important points Academic Honesty Individual Work Only, Allows for Group Discussion of Concepts and Problems Do Not Copy Work Reference Any Source When Confused Ask Instructor Contact me: Rahul Jain (9811228852, rahulkjain16@yahoo.co.in, Yahooid:rahulkjain16) rahulkjain16@yahoo.co.in