Managing Financial Resources and Decision
•1.1 Alternative source of finance
Long Term
Short Term
Long term finance sources- Provides funds for more than one year.
Venture capital
Equity capital
Loans from banks
Issue of debenture and bonds
Leasing
Short term sources of finance- provide funds for just one year.
Bank overdraft
Trade credits
Advances from customers
Short term loans from banks
Friends and Relatives
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•1.2 Assessing the implication of sources Venture capital
High risk seekers
Provides long term funds
Demands for high return
Fixed percentage of sales is to be paid to venture capitalists
Continued Equity capital
Major source of finance
Dividends are paid by company
When dividend declared business pay Dividend taxes
Shareholders have voting rights and control
Issue of Bonds & debentures
Issue debenture is a lengthy and complex process
Puts fixed interest charge on the business
Increases financial leverage of the business
Continued LeasingLease rentals are to be paid Maintenance and repairs expenses are to be bear by lessee No Initial amount is paid Provides tax advantage to business
Continued Bank loans
Loans are to repaid in installments
Interest rates are high
Bank do no grant whole amount in one time
Controlling of business is influence
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•1.3 Appropriate sources of finance for a business project Venture Capital
Provides funds for long term period
Venture capitalists provides managerial assistance
Bank Loans
Funds for long term period
Managerial assistance from banks personnel
Personal Savings
No interest is paid
Remains life time
Share Capital
Not repaid by the business
Dividends may be paid
Collect huge funds
Leasing
No initial investment is required
Lease rentals are paid in installments
Provides tax shields
Friends and relatives
Lower rate of interest is paid
No influence over business decisions
•2.1 Analysis of costs of different sources of finance Venture Capital
Pay fixed percentage on its sales as returns
and bear high risk.
Bank Loans- Interest paid on banks loans are generally high.
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Share Capital- It depends on profits earned by business.
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Leasing- Under leasing, business has to pay lease rental to the leasor for using assets
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Friends and relatives- Interest rate on this source is low.
•References
Jordan, B. J., 2012. Financial Management for Episcopal Parishes. Church Publishing, Inc. Lasher, R. W., 2011. Financial Management: A Practical Approach. 6th ed. Cengage South-Western. Sources of finance, 2013. [Online]. Available through:< http://businesscasestudies.co.uk/business-theory/finance/sourcesof-finance.html#axzz2kWXgGc9L>. [Accessed on 13th November 2013]. Ittelson, T.R. 2009. Financial Statements: A Step-By-Step Guide to Understanding and Creating Financial Reports. Career PressInc Lasfer, M., 2007. On the financial drivers and implications of leasing real estate assets: The Donaldsons-Lasfer's Curve. Journal of Corporate Real Estate.9(2). pp.72–96. Linzner, O.A. and Linzer, S. R., 2008. Cash Flow Strategies: Innovation in Nonprofit Financial Management. John Wiley & Sons.
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