The disadvantages of retained profit

Debentures are loans that are usually secured and have fixed charges or floating charges with them. Debenture holders have no rights of voting or attend an AGM. If the debenture is for land or buildings it can be called a mortgage debenture. Debenture holders got their rights to receive their interest payments before any dividend is payable to shareholders. Most importantly if a company makes a loss; it still has to pay its interest charges for its debenture holders.

If the business fails or goes bankrupt the debenture holders will be preferential creditors and will be entitled to the repayment of some or all of their money before the shareholders receives any payments. This is a law to protect the investors of any organisation. A debenture with a fixed charge a fixed rate of interest will be paid in a particular period of time is fixed charge debentures. Eg: 10% Debenture 2006/2007 i?? 1,000,000' In this example the debenture is been redeemed between 2006 and 2007 and the fixed interest rate is 10%. Debentures can be issued in units of i?? 100 or i?? 1 – if it is in i??

1 units then it will be called debenture stock. A debenture issued with a floating charge means that the interest rate is not fixed. These debentures are usually not given any specific assets like land or buildings. Non Convertible Debentures These debentures cannot convert into equity shares. And this has to be redeemed at the end of the time given Partly convertible Debentures A potion of this debenture can convert into equity shares. And this has to be redeemed at the end of the time given. Fully Convertible Debentures These debentures will convert into equity shares after the specific time.

In terms of investment this would be more profitable comparing to the other two. To finance a sports stadium, for example Wembley, Arsenal, Twickenham rugby stadium and the cricket stadium at Trent Bridge in Nottingham are financed by these ways of debentures. These debenture holders can get boxes at the stadium while the loan period. A) Any project with a positive NPV increases the wealth of the company. On all these project has positive NPV's. These sensors that all of them have its ability to increase the wealth of the company. B) This method also conceders the time value of money which is the opportunity cost.

Unlike the payback method, the total project life is been taken in to the account as well. CONCLUSION In all this four projects we can find positive NPV's, which is quite good on behalf of the company. Out of these four projects, two projects looks out standing. This would be the project 1 and 2. And there is not much different between these two projects. However the highly recommended project would be the 1st one because it has the highest and positive amount of NPV.


By P. C. Kumar – 1994 Internal Sources of Development Finance By Australia Dept. of Industry, Technology and Commerce – 1986 Sources of Finance for Small Business