Question

Assertion (A): Financing through debentures is less costly.

Reason (R): Debentures do not carry voting rights. Therefore, financing through debentures does not dilute control of equity shareholders on management.

Options

• Both Assertion (A) and Reason (R) are True and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is True but Reason (R) is False.

• Assertion (A) is False but Reason (R) is True.

Answer 1

Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct explanation of Assertion (A).

Explanation:

Debentures are less costly because interest is tax-deductible, not because they don’t dilute voting rights. Both statements are true, but they are unrelated.