今日知识点：Sources of finance

例题

Q: Discuss the benefits and drawbacks to a business of using only internal sources of finance to fund expansion. 

解析

Answers could include:

Outline of types of internal funding sources, such as building up reserves through retained earnings, sale of unwanted assets.    

Benefits such as:

• No direct cost to the business

• Readily available

• Does not increase debt

• No loss of control – no share sale

• Risk of high gearing reduced

• Start projects quickly – no approval process externally    

Drawbacks such as:

• Using money from capital reserves or operating budgets leaves a business with less money to manage short-term expenses 

• There may well be a limit to the kinds of expansion that can be funded internally (depends on amount of reserves available)

• Likely to fund only smaller projects where investment is modest, payback is quick and estimated returns significant.

• The viability of an investment project may be given less robust scrutiny when internal financing is used.

• There may be tax benefits of external funding that internal funding does not have (tax deductible interest/depreciation)

下面我们为大家准备了一道同类型的题目，请大家一起来试试解答。

Your turnA private limited company wants to build a new factory. Discuss the factors that the company should consider when choosing sources of finance.  (20)

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