Business Studies

Business Finance

Easy

Hind Beverages

Hind Beverages Inc., the leading soft drink and drinking water company in the private sector, has acquired Himalayan Water Co., in a deal worth $8.6 billion in 2007 to further expand its market share. A financial decision of this magnitude has significant implicitness for both Hind Beverages Inc and Himalayan Water as well as their employees and shareholders.

Hind Beverages Inc. raised a debt of over $8 billion to finance the transaction. This financing decision affected the capital structure of the acquirer.

Identify the source of debt that a company might have used to raise $8 billion to finance the transaction.

Equity Shares

Debentures

Preference Shares

Retained Earnings

✅ Correct Option: 2

Debt capital is borrowed funds carrying fixed interest obligations. Among the options, only debentures are a debt instrument; equity shares, preference shares and retained earnings are all forms of owners' funds. Hence the company would have issued debentures to raise the $8 billion debt.

Question 41

What will be the net effect on the acquirer company's capital structure after the acquisition?

Question 42

What may be the reason behind the acquisition of Himalayan Water Co. by Hind Beverages Inc.?

Question 44

Why might a company prefer debt over equity for financing?

Question 45

Which of the following statements is NOT correct about capital structure?

Identify the source of debt that a company might have used to raise $8 billion to finance the transaction.

Solution

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