Explore BrainMass

Best method of finance

Identify in each of the FOUR situations given below, the best method of finance.

Situation one:
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.

Situation two:
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.

Situation three:
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.

Situation four:
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.

Solution Preview

Possible methods of finance:

1 Government grants
2 Selling existing assets
3 Borrowing from Financial Institutions
4 Selling shares
5 Lease
6 Retained Earnings
7 Selling shares
8 Bank Overdraft.
9 Mortgage

Situation ...

Solution Summary

The solution helps to identify in each of the FOUR situations given below, the best method of financing.