(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’
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…
In business world, a sole trader trades on his business own. He is managing, controlling and most importantly, the sole owner of the business. He is personally entitled to all the benefits and profits of his business at the same time, liable for all the business debts and taxes so if you will become a sole trader of your small consultancy business with your twin brother as your employee that is very easy to establishas it follows no formal or legal processes to employ people to help run your business.
By using the credit policy, an organisation sells its goods on credit to the customers. And after a certain period of time, the customers are required to pay back the credit amount to the organisation. But, sometimes, there are certain customers who are either unwilling to pay back money to the organisation.
Tesco PLC. Tesco offers a wide variety of food products, non-food products and also clothing through its 2,318 stores, with 326,000 employees around the European, American and Asian markets. The company provides its customers with financial services too (Datamonitor, 2004).
It is relatively easy to calculate and apply. Through it, the company can see if a prospective project can meet the annual returns that it expects to generate.
The payback period is regarded also because of its simplicity. Managers prefer to use it because it is generally easy to memorize and to use.
It is based on the estimation of Yuri concerning how the product’s features, price, market share, anticipated marketing actions, allocation channels, and the sales in new areas will impact future sales.
Therefore, the company can opt for debentures, bank loans and selling it shares as effective long term financing methods (Higgins, 2008). Debentures can be a useful form of long term financing. Debentures are a type of loan stocks.
For present case the author is going to learn about how business entities can be able to source their finances, manage their finances so that they can meet their financial obligation. Secondly, the discussion is going to touch on the assessment of various implications of the different sources of finances for the business.
18 pages (4500 words)Assignment
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