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Manging Financial Resources and Decisions - Assignment Example

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Manging Financial Resources and Decisions

(NEEDHAM. 1995) Cost of Sources of Finance: 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) PART A- 2. Case I: 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) Case II: 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 the company needs to see its gearing ratio and the liquidity position. If the conditions are neutral for both, the company should use debt as a source of finance as it is cheaper source of finance due to the interest payments and tax reduction. (DRANSFIELD. 2004) Case III: The football club can use various options as its source of finance, since it isn’t a listed company it can’t raise money from general public, however it can finance improvement in facility by debt financing which will involve interest payments, by government or public funds if the club operates as a charitable organization. PART B. TASK- 1. A) The investors are the most important source of finance for the company. It is very important for the investors to make sound decisions regarding their investments for which they need relevant information to base their judgment on. Mostly the investors are interested in evaluating the company’s potential to generate returns and the risks involved for the generation of these returns. A sound investor will carefully analyze the situation and then take investing decisions. For investing in ARIK AIR PLC the investor would need information regarding the resources of the company, the obligations that the company currently has against these resources, the company’ ...Show more


Managing Financial Resources and Decisions Managing Financial Resources and Decisions PART A- 1. The decision regarding choosing the suitable source of finance depends upon various factors like the need for which funds are required, the duration, purpose and cost of the source of finance…
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