Ït is more advantageous to issue debentures over equity shares". Comment.
The following are the advantages of issuing debentures over issuing equity shares.
a. The issue of equity shares denotes the dilution of ownership of a firm. In contrast, debenture do not result in any kind of dilution of ownership of the firm.
b. A company receives tax deductions on the interest paid to its debenture holders. Hence, issuing debentures is advantageous for a firm in terms of low costs.
c. Debentures carry a fixed rate of return. Thus, companies prefer to issue debentures if they expect to earn higher profits in a year.