Sources of Finance

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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. Conclusion…………………………………………………………………………18

VI. Reference List……………………………………………………………………19

II. Executive summary

I am newly appointed Financial Advisor in a Consultant Company, my Finance Director asked to write a report to Mr. Alan at Vale Filters Ltd evaluating the different sources of finance appropriate to startup stage and its expansion stage also. The report should address the following tasks and issues:

Firstly, I identify and describe the various sources of finance available to Vale Filters Ltd. Secondly, I assess the implications of the different sources of finance to Vale Filters related to risk, legal, financial and dilution of control and bankruptcy. Thirdly, I select appropriate sources of finance for Vale Filters and make recommendations on the best ways of raising finance. Fourthly, I assess and compare various costs involved with each sources of finance to Vale Filters Limited. Finally, I explain the importance of financial planning for Vale Filters Ltd.

III. Introduction

Vale Filters Ltd is new company that has just been established by Mr. Alan Simpson and Mr. Geoff. Although company has not gone to productive activities but company has plan to produce and market the new filter. In the future, the company will develop expansibility into national and international markets. This will involve purchasing additional machinery and equipment to produce quality filters in addition staff training.

The most important thing with the company is capital. As I mentioned, there are two main resources I want to talk with Mr. Alan and Mr. Geoff. They are Equity Financing and Debt Financing. I will show them detail in this report. Based on the fact of the company, Mr. Alan and Mr. Geoff have three projects to increase capital for the company.

Method 1: Issue ordinary share of $1each.

Method 2: Issue 70% ordinary share of $1each and remaining required capital 8% debentures or other options.

Method 3: Borrow $150,000 from Government and repayable over 15years at an interest rate of 5% per annum. Each method has own advantages and disadvantages, select any of which will be based on benefits and security that it offers for the company.

Financial planning is very important with Vale Filters because if the company doesn’t plan to use capital, it can be bankrupt. It will be mentioned about influents of shortages and surplus to the company in this report.

IV. Main body

4.1. Sources of finance and its advantages & disadvantages

Alan Simpson has privately developed an anti-detergent chemical and with his colleague Geoff has developed a filter for use with the chemical. In order to do this, the company can have private source such as friends and relatives, credit unions, partners etc. But the company has some other available sources of finance.

Firstly, it is considered with borrowing from bank. There are different types of banks which operate within the banking system. The main functions and activities of banks can be providing a payment mechanism which firms and government can make payments to each other. it enables individuals and firms to make payments by cheque, note and coins also.

Banks provide a place for...
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