Finance for non finance managers Assignment Example | Topics and Well Written Essays - 1500 words

Finance for non finance managers - Assignment Example40 one thousand million from the debt market. Using debt to run the business has both advantages and disadvantages. Advantages Debt is a moo cost capital. Using debt the keep alliance does not have to pay tax on it. Hence the company go out have to pay less tax overall. Using debt the Earning per piece of ground of the company fluctuates more than using only equity as the address of capital. Hence during good measures the Earning per share of the company give rise much higher than when the company use only equity (Tuller, 2007, p. 211). This satisfies the shareholders as they will energise more in return. Hence they will always want some portion of the capital to be raised as debt. Again using debt the company wear downt have to share the possession rights with the shareholders. They dont have to go back to the shareholders each time they need to take an key decision. All they want is to get fixed return on the investm ent that they have made. Again the lenders dont have any claim on the future earnings. Furthermore if a debt merchant ship be paid on time, then the credit rating of the business will improve and they will promptly get finance easily from the market next time they went to any financial institutions for loan. Disadvantages The company has to take hold regular monthly payment of instalment and interest. Barnet Solutions is going to expand in the European market for the number 1 time. ... 176). Hence it is like a double edged sword. If the economy in the European market deteriorates the Earning per share of the company will fall down drastically. The shareholder then may ask tough questions to the steering regarding their decision making swear out. Pure Equity The company shadower use Equity as the source of fund. Advantages Using Equity the company can avoid the hassle of going through the long process of applying for loan. It takes more time to raise debt than equity. It is le ss risky than a loan because the company will not have to pay back the obligation if they cannot afford it. The company can easily tap into its investors interlock and add more credibility to the business. The investors here takes a long term view and dont expect and immediate return. The company also dont need to payback if the business fails (Mason, 2010, p. 212). Disadvantages The investors can demand returns more than the interest rate the company will have to pay for debt. The investors also will require ownership of the company. They have to be consulted before making any big decision. It also takes time and effort to find the right investors for the company. hitch 2012 2011 D/E 1.18 0.92 The standard Debt-equity ratio of any company is 21. Hence it is advisable for the company to raise fund through both debt and equity. The company can go 8020 ratio of raising the money from the market with the majority being debt and some other being equity. Hence the company can raise ? 32 million from the debt market and ? 8 million from the equity market. After using the above capital the debt equity ratio will become Period 2012 2011 D/E 1.28 1.04 This shows that the company will be well within the standards limits of the Debt-Equity ratio. Answer 2 The