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Fundamental of finance - Article Example

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Investment on Project B is ' 800,000 and that of the other projects is ' 1,200,000. As the projects are indivisible, it is evident that Top Choice has to take up Project B and any one of the other three projects, so that the total investment comes up to ' 2,000,000.
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Fundamental of finance
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Fundamental of finance

This portfolio is best suited for Top Choice as they are high risk takers.
The investment will yield an average return of (31.6% of ' 2,000,000) ' 632,000 with a standard deviation of (7.14% of ' 2,000,000) ' 142,800. This indicates that the return will be in the range of (' 632,000 - ' 142,800) and (' 632,000 + ' 142,800), i.e., ' 489,200 and ' 774,800 respectively.
A company can be financed by a number of different modes. The type of capital financing that has been chosen for the company is referred to as the capital structure of the company. A company can be financed using debentures, equity shares, long term loans, etc. These options however are based on the nature of risk the investors are willing to take. The following sections will discuss the various financing options that are available for investors to finance their companies and the factors that affect the choice have also been discussed.
a) Equity Financing: This is the most common mode of financing used by companies. Here companies raise monies for the business by selling stocks of the company. These can either be preferred or common stock and can be sold both to individuals as well as investors. This is also referred to as the share capital of the company. These stocks provide the buyers with an ownership in the company. This is perceived to be 'easy money' as it does not involve any debt. Here the company does not require repaying the amount to the investors, as long as the business makes profits. Equity financing is best suited for people who are risk takers (J Ogilvie & B Koch 2002).

b) Debt Financing: This type of financing is when a company borrows money from other sources like banks, etc, under an agreement to pay back within a fixed amount of time. Here the lenders do not get any ownership of the business and the relationship remains active until all the monies are paid back. This can be of two main types a) short term financing, where loans taken are for a period less than one year. These are mostly taken by people who are willing to take risks. b) Long term financing is when loans are taken for period higher ... Read More
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