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Introduction to Corporate Finance

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Added on  2020-02-14

Introduction to Corporate Finance

   Added on 2020-02-14

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Introduction to Corporate Finance_1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3TASK -1...........................................................................................................................................31.1 Sources of finance..................................................................................................................31.2 Implications of sources of Finance:-......................................................................................41.3 Appropriate Sources for Raddison Plc..................................................................................5Advantages of Equity Financing-................................................................................................5Conclusion..............................................................................................................................7TASK 2............................................................................................................................................72.1 Costs for the Sources of finances-.........................................................................................72.2 Importance of Financial Planning.........................................................................................72.3 Informational Needs Of The Financing Decisions................................................................82.4 Impact Of Finance on Financial Statements -.......................................................................8TASK-3............................................................................................................................................93.1 Analyzing Budgets & forming it the basis for deciding about Reddison Plc- .....................93.2 Calculation Of Unit costs & Pricing Of Single Unit-:........................................................103.3 Assessment of the project by using different Investment Appraisal Techniques- .............11TASK-4..........................................................................................................................................124.1 Impact on the Financial Statement of Reddison Plc-...........................................................124.2 The formats of Balance Sheet and Profit & Loss Account for a Reddison Plc is as follows-....................................................................................................................................................134.3 Ratio Analysis.....................................................................................................................14CONCLUSION..............................................................................................................................16REFERENCES..............................................................................................................................17
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INTRODUCTION Corporate finance refers to the financial activities undergone by an entity in order tomanage the financial needs smoothly and efficiently . Also the objective is to meet theorganizational goals incurring minimum finance costs to the company and therefore maximizingthe wealth of the company (Swayne and et.al., 2012). Finances of the company can be classifiedinto two major categories. Internal Sources which means the owners contribution such as equity,profits or surplus of the business ploughed back into the company. External sources can bedefined as the funds procured from outsiders such as bank loans, cash credits or debt instruments(Eg- debentures, bonds etc).TASK -11.1 Sources of finance1.Equity Or Retained Earnings- It refers to the funds procured from the owner of thebusiness. Entire equity is divided into small equal & divisible parts called shares. Theholder of the shares are called shareholders and their shareholding into the companydecides the percentage of ownership in the company. They get returns in form of profitsof the company (Malhotra and Temponi, 2010). 2.Term Loans- They are long term loans procured from banks or financial institutions anda particular rate of interest is chargeable on them. They are usually obtained to financethe fixed assets of the company. At times they are also obtained to meet the expansionprogram me of the entity. Cost of the loans are either at the fixed rate or floating rate ofinterest. Amount obtained will be repaid in fixed installments at periodic intervals that isannual or monthly as may be determined from the loan agreement.3.Cash Credits – They are short term loans obtained to meet the working capitalrequirements of company. Any security of the company is kept as a collateral by thebanks to provide cash credits.This security can be stocks or raw materials of thecompany (DRURY, 2013).
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4.Overdrafts- It is another facility in which the bank permits the company to debit thecurrent account below zero up-to a specified limit. It also satisfies the short term workingcapital of the company. Hence it is a short term financing option of the company.5.Debentures- When a company raises loan from general public it issues debentures. Asingle debenture represents a unit of loan amount and the person holding this instrumentis called a debenture holder. A fixed rate of interest is charged on them which isdetermined at the time of issue. 1.2 Implications of sources of Finance:-Financial SourceFinancial Cost Legal CostOperationalCostBankruptcyEquityThere is nofinancial costattached to equity.Regulations ofStock marketshouldbecomplied .Rights of the investors are to transfer the control of the business functions.Nosuchimplication.Term LoansPeriodical interestpayments.Processing &other types ofcharges beingimposed by thefinancialinstitutions(Remu 2010) .No transfer ofVoting rights tofinancialinstitutions tocontrol the dailybusinessfunctions.In case ofinsolvencyReddison has tosell its assets inorder to pay itsdebts.Cash Credits &OverdraftsInterest is to bepaid is only itsfinancial cost.Does not bear anylegal costs.FinancialInstitution doesnot acquire anyrights by lendingOverdrafts toRedisson Plc.This implicationexists as same asthat of term loans.DebenturesPeriodical interests paymentsCompliance ofthe Company'sLaw to issue thedebentures.Debentureholders do notacquire any rightsin the routineaffairsofcompanyCompany has torepaythedebentures afterselling its assetsin case ofinsolvency.4
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