Answer / mansi

debentures can be redeemable or irredeemable but loans have to be repaid aft a particular time duration

Answer / arun kumar

loan is an agreement which is done when any compay or
individual borrows some money for doing business.it is long
term liability for company.in this case company needs money
from bank.so bank charges interest rate what it wants.
debenture is also a long term
liability for a company but only difference is that in this
case bank comes to company and gives loan at the desired
rate of interest fixed by company itself.ie in the case of
debenture company impose decision on bank.

Answer / mukesh sharma

plz pay attention to this point.............a person who holding debentures get interest @ fixed rate along with such holder also have permission to transfer such debenture to other party............bat a person who gives loan to someone only get interest @ fixed rate but have not permission to transfer such loan to other party

Answer / barodianbuddy(acca)

Loan have to be repaid every month with interest according to terms & conditions. It can be short term or long term. Debentures are financial instrument issued to generate funds at fixed rate of interest. It can be redeemable or non redeemable. Debenture is not secured by any collateral but loan is.

Answer / sarvjeet

Both Debentures and Loans are similar for company as regard to fact that both are outside liabilities for a company. But there are some differences. Major which I can recall are as under:

1. Debentures can be raised by companies only while loans can be raised by anyone including individuals.
2. Loans are normally repaid in instalments either monthly, quarterly, half yearly or yearly while debentures are usually repaid in lump sum after a longer period of time which is normally at least 3 years.
3. Debentures have face value and they can be traded in market also while loans do not have any face value and they can not be traded in market.
4. Debentutes have much more features like convertibility, redeemability, management participation etc which is simply lacking in case of most loan agreements.
5. Loans are primarily secured by the asset created by using loan amount. In addition to this they are collaterally secured by some additional asset also and further even by personal guarantees. No such security is attached with debentures except their general lien over the companies assets and their right to liquidate if company fails to redeem debentures on time.
6. Upon liquidation unpaid loans have prior charge on company's assets over unpaid debentures.

All the differences above cannot be generalized in every situation. There are many hybrid products which have characteristics of both loans and debentures. It actually depends upon the nature of contract between both parties.

DHPL is a small sized firm manufacturing hand tools. It manufacturing plan is situated in haryana. The company's sales in the year ending on 31st march 2007 were Rs.1000 million(Rs.100 crore) on an asset base of Rs.650 million. The net profit of the company was Rs.76 million. The management of the company wants to improve profitability further. The required rate of the company is 14 percent.The company is currently considering an investment proposal. One is to expand its manufacturing capacity. The estimated cost of the new equipment is Rs.250 million. It is expected to have an economic life of 10 years. The accountant forecasts that net cash inflows would be Rs.45 million per annum for the first three years, Rs.68 million per annum from year four to year eight and for the remaining two years Rs.30 million per annum. The plant can be sold for Rs.200 million: (a) The company can borrow funds from a nationalized bank at the interest rate of 14 percent for 10 years. It will be required to pay equal annum installment of interest and repayment of principal. (b) A financial institution has offered to lend money to DHPL at 13.5 per annum but it needs to pay equated quarterly installment of interest and repayment of principal. Questions: (1) Should the company expand its capacity? show the computation of NPV. (2) What is the annual installment of bank loan? (3) calculate the quarterly installment of the financial institution loan. (4) should the company borrow from the bank of from the financial institution?

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