Identify in each of the FOUR situations given below, the best method of finance.
Alpha Waffles need to expand and increase their market share by 40% in the next 2 years. They would need to improve their packaging and spend money on advertising. We know that the current interest rate is 15% and banks are reluctant to lend businesses money.
Richardson Ltd is a small building company. Simon Richardson, the owner of the business has to pay his staff £13,000 for their wages. He does not have the money now, however, one of his existing customers promised to pay him by the end of the week.
Barnes Shipbuilding needs to buy new equipment that will cost £345,000. They have £500,000 retained profit from last year but also need to invest in a new project in the far East.
Woods Plc are considering the launch of a new product. The cost of developing this product is estimated around £760,000. The business shares are doing very well in the stock exchanges as the value gone up by more than 50% over the past 18 months.
Possible methods of finance:
1 Government grants
2 Selling existing assets
3 Borrowing from Financial Institutions
4 Selling shares
6 Retained Earnings
7 Selling shares
8 Bank Overdraft.
The solution helps to identify in each of the FOUR situations given below, the best method of financing.