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Finance for non finance managers - Assignment Example
Author : zmurazik
Finance & Accounting
Pages 6 (1506 words)
Finance for non-finance managers Contents Contents 2 Answer 1 3 Purely Debt 3 Pure Equity 4 Answer 2 5 Answer 3 6 Answer 4 7 References 9 Answer 1 Barnet Solution is going for expansion in the European market. For that Barnet solution will need to raise ?40 million additional funds…
40 million from the debt market. Using debt to run the business has both advantages and disadvantages. Advantages Debt is a low cost capital. Using debt the company does not have to pay tax on it. Hence the company will have to pay less tax overall. Using debt the Earning per share of the company fluctuates more than using only equity as the source of capital. Hence during good times the Earning per share of the company will rise much higher than when the company use only equity (Tuller, 2007, p. 211). This satisfies the shareholders as they will get more in return. Hence they will always want some portion of the capital to be raised as debt. Again using debt the company don’t have to share the ownership rights with the shareholders. They don’t have to go back to the shareholders each time they need to take an important decision. All they want is to get fixed return on the investment that they have made. Again the lenders don’t have any claim on the future earnings. Furthermore if a debt can be paid on time, then the credit rating of the business will improve and they will readily get finance easily from the market next time they went to any financial institutions for loan. Disadvantages The company has to make regular monthly payment of instalment and interest. Barnet Solutions is going to expand in the European market for the first time. ...