ACCA Applied Knowledge · Business and Technology · Accounting and finance functions within business organisations
Zeta Co wants to raise long-term equity finance from existing shareholders without issuing shares to outsiders. Which method should it use?
A rights issue is correct because it offers new shares to existing shareholders in proportion to their current holdings, raising equity while keeping ownership with them. Debentures are debt finance and a sale and leaseback releases cash from an asset, so neither raises equity.
- AA rights issueCorrect
- BA debenture issue
- CA sale and leaseback
Explanation
A rights issue offers new shares to existing shareholders in proportion to their holdings, usually at a discount, so control is preserved. A debenture issue is debt, and a sale and leaseback raises funds from an asset and is not equity.
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