Read the following passage and answer the question.

Neeru, the finance manager, and Mani, the managing director of ABCD Ltd., were discussing how to raise funds for modernizing their existing plant. Neeru suggested using equity, pointing out that the Sensex has risen by 6,000 points in the last 4 years. However, Mani wanted to choose debt as the source of finance. The company has high operating costs over time.

Considering the company’s high operating costs, suggest the source of finance that should be used for modernisation of existing plant.

Equity

The correct answer is option 1- Equity.

Considering the company’s high operating costs, it might be better to opt for equity financing instead of debt to avoid additional financial burden from interest payments.