Methods of Raising Capital in London Stock Exchange

Table of Contents
Task 01.............................................................................................................................................3
1.1 Identify different sources of finance..........................................................................................3
1.2 Assess the implications of the different sources........................................................................3
1.3 obtaining a listing in a stock exchanged....................................................................................3
1.4 methods of obtaining a listin......................................................................................................3
1.5 the methods of raising capital....................................................................................................3
Task 02.............................................................................................................................................3
2.1 Cost of Shares & Debt...............................................................................................................3
2.1 (a) Cost of Ordinary Share Capital............................................................................................3
2.1 (b) Cost of Preference share capital...........................................................................................3
2.1 (c) cost of debenture capital after tax........................................................................................3
2.1 (d) Calculating the Weighted Average Cost of Capital (WACC).............................................3
2.2 Importance of Financial Planning..............................................................................................3
2.3 Informational Needs of Directors, Senior Managers and Junior Managers..............................3
2.4 Impact of Finance on the Financial Statements.........................................................................3
Task 03.............................................................................................................................................3
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3.2 calculations of the production cost, price and profit..................................................................3
3.1 Production Budget.....................................................................................................................3
3.3 Calculation of the PBP, ARR &NPV........................................................................................3
References........................................................................................................................................3
Task 01
1.1 Identify different sources of finance available to Milner chemicals Plc.
As the Milner chemical is a Public Limited Company, it is capable of raising the capital from
two main sources such as internal sources or external sources. (Samuelson, 2006) So here the
internal sources are implying the capital which are generated from the insider of the organization
such as holding the profits of the organization other than dividing to the shareholders, reducing
the inventory level of the organization or delay the payments to its creditors etc. on the other
hand the Milner Plc is capable of going to external fund sources and there are three main types of
external finances such as short term, Medium term and long term. (Charles, 2004)
Here the short term financing sources are indicating the money market which is consisting of the
securities which are matured within one year period or less than one year like treasury bills,
commercial papers etc. and then the medium and the long term financing will indicate the capital
market which is comprising with the securities which are matured more than 5 years like treasury
bonds, bank loans, government bonds etc. so here the company should have to determine their
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fund requirements with the time framework and the expected future obligations in a cost
effective manner.
Here the trade credit, short term bank loans and the advances, overdrafts, cash credit, customer
advances, installment credit and loans from cooperatives etc. can be identified as short term
external finance sources. And then the medium term loans and the advances as well as the
medium term cash credits, medium term cooperative loans etc. can be considered as medium
term external financing sources to the Milner chemicals. Finally it can be recognized that there
are so many long term finance sources to Milner chemicals like loan finance or loan stocks such
as ordinary shares preference shares in stock market, debentures, long term bank loans,
convertibles debentures and convertibles loan stocks, mortgages, leasing, hire purchase, debt
factoring etc.( Crockford, 2006)
1.2 Assess the implications of the different sources.
When it comes to identify the implications of the internal financing sources of the Milner
chemicals, it can be identified that the internal financing has lesser cost than external fund
sources with raising the capital internally. And also it is not necessary to repaid and no interest is
payable for that as well. But there is a huge capital constraints regarding the amount of money
can be raised itself. (Berezin, M., 2005)
However when it comes to external financing, it may lead to arise a huge amount of money from
the capital markets and it will cause to enhance the financial leverage of the company and
thereby the enhancing the ROE as well. (Shapiro, 2008) Here the company should have assess its
funds requirements in terms of the short run, medium run or long run and the expected capital
structure of the company before going to select the financing resources internally or externally. If
the organization is willing to go for the financial leverage, then it would be better to go for the
debt financing options. (Samuelson, 2006) And also here the company should have to evaluate
their life cycle and place they are n currently, because the debt financing is suitable for the
growing or maturity level firm and unless otherwise it would better to go for equity fiancé with
the existing shareholders of the company and the operational leverage with lower level of debt or
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no debts within the capital structure of the company. So it is very much important to Milner
chemicals Plc to evaluate their existing capital structure and the expected capital structure before
going to select the options related to the debt financing or equity financing here. (Berezin, M.,
2005)
Bank loans
Advantages Disadvantages
This is good for the budgeting of the company
as the repayments can be spread over the time
period easily
This can be more expensive as the interest
payments
Bank will require some securities for the long
term loans itself
Share Capital (Ordinary Shares & Preference Shares)
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Advantages Disadvantages
Suitable as long term finance source with the
requirement of redeemable or unredeemable
base
Profit has to be paid as dividends and there is
some circumstance that the company should
have to pay the obliged dividends as it is,
whether there are no profits for the year.
No need to pay the interests as only have to
pay dividends as residual claims of the
organization
Ownership of the company can be changed
with the increasing no of owners for the
ordinary shares issuing
No liability exists, beyond the company’s
assets
Share value may become decrease with the
increasing no of shareholders, thus it may
cause to future acquisitions or liquidation of
the company as well(Samuelson, 2006)
Leasing & Hire Purchase
Advantages Disadvantages
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