Explaining short and long term sources of finance for acquisition

Report

Table of Contents
1.Explaining the short and the long term sources of the finance in funding an acquisition ......3
2. Evaluating several capital budgeting techniques and recommending viability of an
acquisition ..................................................................................................................................4
REFERENCES ...............................................................................................................................8

1.Explaining the short and the long term sources of the finance in funding an acquisition
Short term funding sources are as follows-
Overdraft Agreement- By entering into an overdraft agreement with bank, the financial
institution would allow business in borrowing to the certain limit without a requirement of the
discussion. The bank may ask the company for the security as the collateral and it might charge a
daily interest at the variable rate on an outstanding debt. However, this funding is been made
only when a business is having a confident in making repayment on a quick basis then overdraft
agreement is seen as valuable financing source.
Accounts receivable funding- Under this most of the banks provides for a discounting
facility where a company takes commercial bills to bank that makes payment after deducting a
small amount of fee (Abor, 2017). Thereafter, on a due date bank collects money from a
customer and it is seen as the another financing method among the small traders. The businesses
offers a large credit term that could carry on its operations without waiting for customers in
settle down their bills.
Long term sources are as follows-
Bank borrowings- Company could opt for the full-fledge longer period loan from the
bank which allows them in meeting their need of funds for acquisition of Ferry. However, it
involves payment of the interest and the company has to repay the amount borrowed after a
specified period of time.
Equity and debt financing- Through an issue of the shares and the debentures, company
could raise large funds in order to acquire Ferry. However, raising the funds by way of equity
results in dilution of an entity's shareholding and debt financing involves raising financial burden
relating to fixed rate of the interest (Chang and et.al., 2017). On the other state, equity financing
does not provides for any kind of interest obligation and the profit needs to paid only in case of
the profits generated. Moreover, debt financing does not involves any distribution of the profits
and the firm has to bear only the fixed amount of interest even in case company is earning larger
profits.
Thus, by using these sources of finance company could be able to raise large funds so
that it could acquire Ferry without any problem regarding lack of the funds.