The correct answer is: A. New Equity Shares
Equity shares are the most expensive source of funds because they represent a permanent claim on the company’s assets. This means that equity shareholders have a right to a share of the company’s profits, even if the company is not profitable. They also have a right to a share of the company’s assets if the company is liquidated.
Preference shares are a type of equity share that has a higher claim on the company’s assets than ordinary shares. This means that preference shareholders are paid a dividend before ordinary shareholders, and they are also paid first if the company is liquidated. However, preference shares are still less expensive than equity shares because they do not have the same voting rights as ordinary shares.
Debt is a loan that a company takes from a lender. The lender has a right to be repaid the loan, plus interest, on a specified date. Debt is a cheaper source of funds than equity shares because the lender does not have a claim on the company’s assets. However, debt can be expensive if the company is not able to repay the loan on time.
Retained earnings are the profits that a company keeps after paying dividends to shareholders. Retained earnings are the cheapest source of funds because they do not require the company to pay interest or dividends. However, retained earnings are limited by the amount of profit that the company makes.
In conclusion, equity shares are the most expensive source of funds because they represent a permanent claim on the company’s assets. Preference shares are a type of equity share that has a higher claim on the company’s assets than ordinary shares, but they are still less expensive than equity shares. Debt is a cheaper source of funds than equity shares because the lender does not have a claim on the company’s assets, but it can be expensive if the company is not able to repay the loan on time. Retained earnings are the cheapest source of funds because they do not require the company to pay interest or dividends, but they are limited by the amount of profit that the company makes.