What decision was finalised for raising required funds.

Financial Decision

Sunrises Ltd. dealing in ready-made garments, is planning to expand its business operations in order to cater to the international market. To prepare for the future operations, the financial manager estimates that the raw materials will get costlier in the next year and the market will grow in the next 18 months. As the new orders will be placed by the international buyers, the earnings of the company will become more stable. He also suggested that it is advisable to increase production by investing in new machinery. For this purpose the company needs an additional rupees 80,00,000 to replace machines with modern machinery of higher production capacity. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was rupees 8,00,000 and total capital investment was rupees 1,00,00,000.

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Raise the required funds by issuing Debentures only

Option (1) Raise the required funds by issuing both shares and debentures. — Incorrect. No issue of shares is mentioned. The whole amount is to come from debt.
Option (2) Raise the required funds by issuing Shares only — Incorrect. Shares are owners’ funds. The company has chosen borrowed funds instead.
Option (3) Raise the required funds by issuing Preference Shares only — Incorrect. Preference shares are also a kind of share capital, which the passage does not mention.
Option (4) Raise the required funds by issuing Debentures only — Correct. The passage states that the company wishes to raise the required funds by issuing debentures. Debentures are borrowed money, on which the company pays a fixed rate of interest whether it earns a profit or not. The debt is to be issued at an estimated cost of 10%, and nothing else is proposed.

Note: The passage is built on an NCERT exercise question on Sunrises Ltd. in the chapter ‘Financial Management’, which has been reproduced by NTA in the exam.

NCERT (2026-27 Edition): “Short Answer Type … 5. Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. …”

“…The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. …”

Financial Decision

What decision was finalised for raising required funds.

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Raise the required funds by issuing Debentures only

Option (1) Raise the required funds by issuing both shares and debentures. — Incorrect. No issue of shares is mentioned. The whole amount is to come from debt.
Option (2) Raise the required funds by issuing Shares only — Incorrect. Shares are owners’ funds. The company has chosen borrowed funds instead.
Option (3) Raise the required funds by issuing Preference Shares only — Incorrect. Preference shares are also a kind of share capital, which the passage does not mention.
Option (4) Raise the required funds by issuing Debentures only — Correct. The passage states that the company wishes to raise the required funds by issuing debentures. Debentures are borrowed money, on which the company pays a fixed rate of interest whether it earns a profit or not. The debt is to be issued at an estimated cost of 10%, and nothing else is proposed.

Note: The passage is built on an NCERT exercise question on Sunrises Ltd. in the chapter ‘Financial Management’, which has been reproduced by NTA in the exam.

“…The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. …”