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    Debentures and Equity

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    hansdeep479
    Debentures can be redeemed at different values including a premium, par, or discount value. Companies benefit from redeeming debentures as it helps maintain solvency ratios and lower costs. Companies source redemption funds from profits, asset sales, capital, new debentures, and own purchased debentures.

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    Debentures and Equity

    Uploaded by

    hansdeep479
    10 views2 pages
    Debentures can be redeemed at different values including a premium, par, or discount value. Companies benefit from redeeming debentures as it helps maintain solvency ratios and lower costs. Companies source redemption funds from profits, asset sales, capital, new debentures, and own purchased debentures.

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    debt equity

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    Debentures and equity

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    Debentures can be redeemed at different values including a premium, par, or discount value. Companies benefit from redeeming debentures as it helps maintain solvency ratios and lower costs. Companies source redemption funds from profits, asset sales, capital, new debentures, and own purchased debentures.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    10 views2 pages

    Debentures and Equity

    Uploaded by

    hansdeep479
    Debentures can be redeemed at different values including a premium, par, or discount value. Companies benefit from redeeming debentures as it helps maintain solvency ratios and lower costs. Companies source redemption funds from profits, asset sales, capital, new debentures, and own purchased debentures.

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    Debentures are redeemable at three different values.

    There is a premium value, at par or


    discount value. Redemption of debentures at premium value means exchanging debentures at
    a higher value than their face value. Let's say the face value of a debenture is Rs.100. Then,
    the premium value of such debentures could be R.110 or 120 and more.

    On the other hand, redeeming debentures at par value means exchanging debentures at a
    value equal to the face value.

    At the discount value, debentures are redeemable at a lower value than the face value. Let's
    assume the face value of a debenture is Rs.100. Then, at a discounted value, the redemption
    value could be Rs.90 or 80.

    Benefits of Redeeming Debentures


    When a company issues debentures, it raises capital at lower costs than equity. Here are other
    benefits of redeeming debentures.

     Debenture redemption keeps the solvency ratio at a satisfactory level


     A company y can raise capital at a cheaper cost through debenture than equities
     Companies lower operating costs through the redemption of debentures
     When the debenture interest rate is higher than market rates, companies that issue the
    debentures can gain by rebalancing their balance sheets and reducing the expensive
    external liability
     Companies use the excess or idle resources to get maximum return on investment
    through debentures

    Source of Funds for Redemption of Debentures


    Where do companies get funds for debenture redemption? Issuing debentures comes with a
    commitment to pay. So, upon maturity, a company can redeem debentures using the
    following sources.

     Money from the sale of fixed assets


     Company's profits
     Company's partial capital or small share of the capital
     Conversion of debentures into shares
     Funds from new debenture issuing
     Own purchased debentures to finance company growth and expansion.

    Methods of Redemption of Debentures


    Redeeming debentures means the company pays the principal amount it owes the debenture
    holders. Below are various methods that companies use to redeem debentures.

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