Managing Financial Resources & Decisions | Assignment
Added on 2019-12-28
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Finance
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Managing Financial Resources and DecisionsQCF L4Assessor: Mr Kofi BarimahStudent: Sura Olga
Task oneThe appropriate sources of finance available for the companyVenture capitalVenture capital is cash into business which might be lost if the business fails. An entrepreneur who is starting up a new investment project will venture in an investment capital of his own, but he will require more finance from other sources (Damodaran, 2010). Nevertheless, the term venture capital is more linked to putting cash, normally in return for equity share in the business, a management buyout, or a key investment growth plan. Business/Bank loanThe bank loan provides short to long term funding and the fund every asset requirements inclusive of the working capital, equipment, as well as real estate. This assumes that one can create sufficient cash flows to cover the interest payments and the return on principal amount. Banks want collateral for loan, which require personal assurance and secured interest like personal assets. Banks provide some flexibility in which a company may pay loan earlier and endthe contract in spite of decline in lending, the custom business loan route is common alternative for start-ups, and the benefit of retaining the equity in the business is bestowed on the company. The government pushes for the growth in existence of business loans for small business through initiative like the funding for lending, start up loans as well as business banks.Internal Revenue ServiceThe internal revenue service does not lend money but instead it permits the business to reduce the cost. If the business is paying high taxes, appraise if the business may use its profits to grow the business and reduce the tax cost(Davies, 2013).
Friends and family membersFriend and family members are very effective source of capital since they do not make the company pledges its asset and they may even consent to dispose their interest in the business back to the business for a nominal return.Equity and debt capitalThe company raises new funds through equity by raising the initial public offer in which members f the public are invited to subscribe to the company’s shares. The company may as wellraise capital by raised debt capital in form of loan stock.The appropriate sources of finance for the expansion plan of the Radisson CompanyThe best source of capital is for Radisson Plc is the business loan since, if there loan is provided to the business, the loan will not under normal circumstance be rapid by the owners of the business of the business fails. In the event of business failures, the business is liquidated, this aids in paying back the funding borrowed, many business owner ensure that the benefit aspect in considered when going for business loan since it is just the business that will be insolvent in the event of load default and not the owner of the business(Gibson, 2008). The interest ion loan is very low. As the liquidity of financial institution goers in the weaker of global financial crisis, financial institution are growing the rate of lending and the interest rate will soon grow to compensate. Any loan given to the business will depict low overheads unlike the loan taken in two years time, it makes this appropriate time of planning for the business growth.
Task twoThe cost of funding the project using equity versus debt financeDefining debtDebt source of finance implies the borrowing cash from an external source with the pledge of paying back the borrowed amount together with the interest agreed. The custom secured loan such as those provided by financial institution are kind of debt funding. The loan is pad back in monthly installment and commands the individual assurance by providing collateral for loan. If the borrower fails to pay the debt, the collateral might be used to pay the debts. The benefit of debt secure capital for the business is that lenders unlike the equity investors do not have any sayin the business operations, with the debt funding, business owners will have an association with the lenders that will end with the specified loan period(Henderson, 2015).Equity financingThere equity source of capital implies raising capital by selling the shares to investors. Unlike thedebt capital, equity capital funding is not paid back with interest but rather investors invest their cash into the business and turn to be partial owners of the business. They are then entitled to share of the business retained earning as time goes by. The source of equity for the business owners is from friend and relatives unlike the loan capital and hence, the equity investors will getreturns when the business starts to make profits. The benefit of equity is that it gets rid of setbackof debt financing in that equity capital does not divert capital from business to pay the debt balances and it shares in the business risk(Jain, 2007). Another benefit of equity capital is that equity finance form the business does not have to pay investors back immediately, the implication is that there is more time for the business prior to starting being anxious of how the business will pay the equity capital. In addition, if the business fails, there is no one to repay
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