Question

Gokul Steel Ltd is a large and creditworthy company that manufactures steel for the Indian market. It now wants to cater the Asian market and decides to invest in new hi-tech machines. Since the investment is large, it requires long term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost, the company decides to tap money market.

(a) Name and explain the money – market instrument the company can use for the above purpose.

(b) What is the duration for which the company can get funds through the instrument? 

(c) State any other purpose for which this instrument can be used.

Answer 1

The company can issue equity shares with premium. If the shares issue at premium value, the share can be subsided easily because the company has already created a credit worthy less. So it can easily raise their capital and get more funds and solve the huge requirement of funds.

(a) NSE (National Stock Exchange) – Gokul Steel Ltd.

BSE (Business Stock Exchange) – Equity shares

(b) Equity share capital for long term source of the company. One year, two years or life time of the company.

(c) In the future the shares can be used to change the value of shares. In the future this investment can be surrendered and get back the cash also with dividends.