Sources of Finance Essay

4492 Words Jun 23rd, 2010 18 Pages
Table of Content Page
I. Assignment coversheet………………………………………….………………….1-3

II. Executive summary……………………………………………………….………5

III. Introduction…………………………………………………………….….……...5

IV. Main body…………………………………………………………….…….……..6

4.1. Sources of finance and its advantages & disadvantages…………………….…6-8

4.2. The implications of the different sources of finance……………………………8-9

3. Appropriate sources of finance for a business project………………….……….9-13

4.4. The costs of sources of finance for Vale Filters Limited………………….…….13-16

4.5. Importance of financial planning……………………………………………….17-18

V.
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But the disadvantage is that the business will be required to draw up a detailed business plan, financial projections for which the enterprise is likely to need professional help.

The fourth approach to consider that Vale Filter is a limited company, therefore it has own sources of finance like:

Debenture is a loan for a long term on which a company promises to pay a fixed rate of interest (Oxford Business English Dictionary). A big advantage of debentures which the company can raise a large amount of money from investor quickly. But its disadvantage which debentures are usually secured, therefore the lenders have the right to seize assets when the loan could not be repaid.

Right issue - A company which already has a Stock Exchange listing will commonly issue further shares through a right issue. A right issue involves the offer of new shares, at a discount market value, to current shareholders in proportion to their current share holding (BPP, p.38, 2004). The main advantage of right issue is relatively simple and cheap. Secondly, with right issue the shareholders are given some choices. The third advantage is company can often raise large amounts of capital. Furthermore, by using right issue shares, all gains from any investment will accrue to existing shareholders. But its disadvantages include of a right issue is not feasible if small amounts of finance are required.

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