Suggesting Alternative Methods of Funding for AB Plc

Running head: MBA-FINANCIAL ANALYSIS AND MANAGEMENT
MBA-Financial Analysis and Management
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1MBA-FINANCIAL ANALYSIS AND MANAGEMENT
Table of Contents
Introduction:....................................................................................................................................2
1. Suggesting 4 alternative methods of funding to the boards of AB Plc debating critically the
reasons behind each of these methods of funding:..........................................................................2
1.1 External source of finance:........................................................................................................2
1.2 Stating about the external equity funds and debt funds:............................................................3
1.3 Suggesting the ways in which AB Plc may raise the funds from external equity:....................3
1.4 Suggesting the ways in which AB Plc may raise the funds from external debt:.......................4
1.5 Discussing the general factors to be considered in raising either debt or equity funds:............5
2. Critical discussion on the suitability of such funds:....................................................................7
2.1 Internal factors:..........................................................................................................................7
2.2 External factors:.........................................................................................................................8
3. Critically discussing the link between the above financing decision and investment decision
relating to the acquisition of the unlisted company:........................................................................9
3.1 Discussing the impact of financing on cost of capital:..............................................................9
3.2 Discussing the use of WACC in investment appraisal:...........................................................10
3.3 Critically analyzing the link between the debt finance, WACC and NPV:.............................11
3.4 Providing the relevant recommendations:...............................................................................11
Conclusion:....................................................................................................................................12
Reference and Bibliography:.........................................................................................................13

2MBA-FINANCIAL ANALYSIS AND MANAGEMENT
Introduction:
The overall assessment aims in detecting the appropriate source of finance, which can be
used by the organisation for acquiring the unlisted company. There are different sources of
finance, which can be used by the organisations for supporting their operations and reducing the
negative impact on their productivity or exposition. In addition, there are different levels of
finance source, which can be used by the organisation at appropriate time for improving their
operations. The detection of different finance source provides the management with adequate
information regarding the opportunities, which can be grabbed for increasing their growth in the
long term.
1. Suggesting 4 alternative methods of funding to the boards of AB Plc debating critically
the reasons behind each of these methods of funding:
1.1 External source of finance:
The sources of finance can be both internal and external, as and when required by an
organisation. Moreover, sources of finance are able to segregate under three segments such as
short-term finance source, medium-term finance source and long-term finance source. The
different segments of the finance source have relevant significance and support alternative needs
of the organisation to support its operations. In addition, the assignment of finance source is also
segregated on the basis of interest rates, where the shorter finance options have higher interest
rates in comparison to other segments (Yazdanfar and Ohman 2015). Hence, AB Plc can

3MBA-FINANCIAL ANALYSIS AND MANAGEMENT
adequately use the identified source of finance for supporting the acquisition of an unlisted
organisation.
1.2 Stating about the external equity funds and debt funds:
There are different sources of finance that can be used by AB Plc for acquiring the
required funds for acquisition process. In this context, Wamser (2014) mentioned that detection
of appropriate source of finance mainly allows the management to make prompt decision for
raising the required funds and support their operations. The management can use four distinct
method of finance to supports its operations. Issuing of equity shares, Debentures or bonds,
Loans from banks and financial institutions, and lease financing are identified as the four major
source of finance that can be used by the management of AB Plc for gathering the required funds
for the acquisition of the unlisted company. On the other hand, Ding, Liu and Wu (2016)
criticises that selection of wrong source of finance can increase the debt exposure of the
company, which in turn can have negative impact on their actual income from operations.
1.3 Suggesting the ways in which AB Plc may raise the funds from external equity:
The right issue of equity shares is considered to be one of the major sources of finance,
which can be used by AB Plc for acquiring the required funds for their operations. However, the
current capital structure of the company indicates that the management has only used equity
share capital for conducting its operations until now. Hence, using the equity share price for
future capital requirements can directly have impact on its overall share price values. The offer-
for-sales will directly increase the number of shares in the stock market, while the current
demand being stable. This would only lead to a decline in the overall share price value of the