Manging Financial Resources and Decisions - Assignment Example

(NEEDHAM. 1995) Each source of finance has its cost which is an important factor to consider in choosing the source of finance. Equity capital as a source of finance, through ordinary and preference shares has a cost of share in the company’s holding and dividend payments have to be made to the shareholders. Retained profits as a source of finance potentially involve no cost to the company. Debentures are another important source of finance which has interest payments to be made to the debenture holders.

Bank finance and overdraft facility by the banks also involves payment of interest to the banks. On the other hand specific assets can be funded by hire purchase and leasing which will involves rental payments to the lessor. The company can also use its trade debtors for short term source of finance which could be done by factoring. This could involve an amount of payment to the factoring company and in some cases loss of reputation as the factoring company may not treat the debtors well. (DRANSFIELD. 2004) Mr. Singh needs finance to fund the premises and start up his business.

He might not require additional money for starting up of this business as he already got a redundancy payment. To finance the premises Mr. Singh can obtain a mortgage loan from any bank and financial institution. This is the most appropriate source of finance for the premises, land and buildings. The lending institution will process the loan and Mr. Singh would get to start his business immediately and can repay the loan over the years as his business gets stronger. (NEEDHAM. 1995) A public listed company has many options to be used as a source of finance.

The company could raise £ 5 million by either equity finance or debt finance. There will be various factors that need to be considered for both the options. For equity financing the company has to see its authorized share capital before issuing new shares. For debt financing