Sources of Finance Assignment Help

Scenario 1:

A medium-sized engineering firm with an annual turnover of £2.5 million has decided to install a new piece of machinery to help improve its productivity. The equipment needs to be

housed in a new building to be constructed on the site. The forecast cost of the building ts £150,000 and the equipment £400,000.

Scenario 2

An individual has been made redundant after 20 years with a major organisation and has received a lump sum redundancy payment of £70,000. The individual 1s planning to set up a bookmakers and has identified a suitable premises valued at £180,000 near to a major town centre shopping precinct.

Scenario 3:

A large plc is planning on moving a major part of its production facility to Cornwall. It has identified a site near a former chalk pit that is now not used. The estimated cost of the facility is £4.5 million.

Scenario 4:

A rugby club is anticipating turning fully professional after the team secured promotion to the Zurich premiership. To take its place in the league, the league committee have insisted that it also improves facilities at the ground. It has been estimated that the cost of these two measures will be £550,000.

Scenario 5:

A major UK plc is planning the takeover of a competing business. The move has been investigated by the Competition Commission and permission has been granted. The current share price of the rival firm is 260p and the firm has made an offer of 340p per share. The current market capitalisation of the target firm is £4.5 billion.

Scenario 6:

A small newsagent in a rural village centre has decided to purchase a new freezer cabinet and oven/roasting unit to provide hot meals for village workers and for students at the secondary school which serves the surrounding area which is located half a mile from the village centre. The cost of the units is £3,500.

Scenario 7:

A large charity organisation has followed a consultancy programme on streamlining its records. The consultants have suggested investing into a software package that will provide a sophisticated database programme that will do all the things that the charity will require for the next 10 years. The cost of the software package is £65,000.

Scenario 8:

Following the construction of a new housing estate on the outskirts of a major city, a group of 10 ambitious young professionals has decided to try to exploit the type of resident moving into the area by setting up a gym and health centre on earmarked land within the development. The building has been bought by the group for £800,000 but needs to be furnished and fitted out for the purpose intended. The cost of the restaurant and gym facilities is estimated at £95,000 but the other major cost is the swimming pool, spa and sauna area. This could be utilised on a separate project to the fitness centre as the local council want to secure use for local school children and elderly residents - this being part of the purchase arrangements associated with the new housing development.

Scenario 9:

Khaleed Dough Ltd is a successful Bakery that supplies bread to supermarkets in the North of UAE. It wants to expand into other areas of the country, but it needs finance of 5 Million Dirham to build a new factory so that it can increase production sufficiently.

Scenario 10:

Adam Upp ts a partnership run by five accountants. Their computer system is slow and out- of-date. They need ten new computers (one each, and five for administration staff) as well as a new server. They also want to buy new computers and install the latest accounting software which will cost 800,000 Dirham. 

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Scenario 1

Retained earnings and Bank Loans

In this case, main sources of funding can be retained earnings and bank loans as the firm is medium-sized having an annual turnover of £2.5 million showing accumulated retained earnings which can be used for funding the new equipment. Therefore, around 50% of funding needs can be arranged from retained earnings and the rest of the funding can be arranged from borrowings in the form of bank loans. As the firm is well established so repayment of the bank loan installment is easy (Fafchamps, 2003). The total funding need is £550,000 (£150,000+£400,000) so £275,000 should be taken from the accumulated retained earnings and remaining £275,000 as bank loan so easy to pay lower loan installments periodically.

Scenario 2

Financial Lease and Bank Loan

In this scenario, an individual needs a huge investment of £180,000 with receipt of redundancy payment of £70,000. The individual can take the assistance of lease option for financing investment in the suitable premises. The individual can make down payment of £70,000 and the remaining amount of £110,000 should be arranged in the form of a lease. This option will help to make lesser repayment of the installment with the reduction of individual’s earnings (Triantis, 2008). Another option is Long-term bank loan, which is also suitable in this scenario as repayment of loan installment of £110,000 is convenient for the individual in a long time (Fafchamps, 2003).

Scenario 3

Bank Loan, Bonds, and Equity

In this scenario, a capital project is in need investment of £4.5 million that is huge funding without ascertaining the success of the project because of the new market area and the new products. The most suitable option for funding is using retained earnings and issue of shares in the hands of the company to cover the uncertainty of the success of the project. The company also issue bonds for borrowing the funding. It will help the company to keep the cost of funding at low due to a low rate of interest and tax shield of the interest payment on the issued bonds (Choudhry, 2004). Another option is long term bank loan which provides flexibility in repayment of the installment with lower installment with the tax shield help to achieve the least cost of the funding arrangement. The company can use in a portion of both the funding source around 50% bank loan and 50% shares funding for the purpose.

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Scenario 4

Sponsor and Bank Loans

In this case, the most suitable financing source is Sponsor because it is easily available for sports events in the real world. The funding need of £550,000 can be managed with the help of Sponsorship easily without incurring any extra costs. Another option is medium-term bank loans because the subscriptions from the game can be used for the repayment of the loan installments with sufficient time for repayment of the loans (Morrison, 2016).

Scenario 5

Equity Financing

In this case, the acquisition of a rival business can be completed with the funding arrangement via equity financing including the issue of shares and use of retained earnings for payment of the shareholders of the rival business. It is capital investment project so the owners’ funding is a most reliable and viable source of funding to cover the risk of unsuccessful running of the rival business in the market (Gaughan, 2007).

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Scenario 6

Savings and Borrowings from Relatives and Friends

In this case, savings is one of the main sources of funding for new freezer cabinet and oven/roasting unit because an individual cannot take bank loan easily for this purpose and no option for other funding sources like the issue of shares, bonds, etc. Another option is borrowings from friends and relatives which is suitable due to most of the funding without interest or least interest burden so easy to make repayment within the reasonable time (Atsede & Brychan, 2017).

Scenario 7

Bank Loan and Charity Funding

In this scenario, Charity funding from past accumulated funding and expected funding from the new sources can be used for the acquisition of software worth £65,000. Another option is medium-term bank loan which is also suitable funding because of sufficient to time to repay the installment. However, this source of funding has a burden of interest which increases the cost of the software (Fafchamps, 2003).

Scenario 8

Bank Loan and Savings

In this scenario, there should be the use of bank loan source of funding because business improvement funding can be easily available for promoting the business activities. Another source of funding is personal savings of ten participants that is also a suitable mode of financial arrangement. There can be the use of partially of personal savings and bank loan which helps to lower the repayment of the bank loan installment by keeping the low cost of funding for the purpose (Atsede & Brychan, 2017).

Scenario 9

Bank Loan and Retained Earnings

In this scenario, the most suitable source of funding is accumulated retained earnings as the business has been successful in the several past years so much of the accumulated retained earnings in the hands of the businessman. Another option is long-term bank loan because it is suitably available to the business due to past reputation and growth and expectation of the futuristic growth. Both the options of funding can be used partially for proper funding arrangement (Fafchamps, 2003).

Scenario 10

Bank Loan and Retained Earnings

In this scenario, there should be the use of the bank loan for buying the new computers which are suitable available for small period easy for repayment over the short period. The retained earnings can be used for the funding to the acquisition of the new computers. It is appropriate for the firm to use both the sources partially for efficient management of funding needs (Choudhry, 2004).

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