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Managing financial resources and decision assignment

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Introduction

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 4.3 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. ...read more.

Middle

It is very good when Vale Filters Ltd is a new company that has just established so the company does not have customers. * Absence of "brokerage costs" * Suitability for raising large amounts of cash * Avoidance of the need to raise cash from existing shareholders * Reduction of the risk of a future takeover taking place, due to the introduction of shareholders. Disadvantages: * Insufficient earnings may be available * Do not to be flexibility in activity process * The cost of capital using higher. * The company is not deducted tax to repay loans * When one of six investors has more shares in company, they will control company replace Mr. Alan and Mr. Geoff so risk in this situation is very high * In the present, the company does not lose expense for using the capital owners but in the future, this expense is higher than expense of debt * Do not share risk * The company has just established so do not every shareholder invest into the company. They will depend on profit they earn from the company and prepare that with profit from banks. Beside, invest into our company in present to be an adventure because the company has not produced goods yet so the company has not had any income. Method 2: According to professional, companies do not use only one Equity or Debt financing. Most businesses have a mix of debt and equity financing. Too little equity could prevent company from securing or repaying loans, while carrying little or no debt could indicate that company is too risk-averse, and that business might not grow as a result (sbinformation, accessed 2009) Method 2 is to combine between two resources of capital so degree of risk is lower. The company is pressurized by creditors who buy our debentures but it is not too high because our company debts only 30%. ...read more.

Conclusion

Ultimately, enterprises must pay for capital in excess of time not to use. What if a financial planning makes wrong assessment of time, duration, size of loan will affect the capital of business: One example of wrong time borrows capital which making shortages or surpluses, the enterprise requires $ 15,000 on September, but my company borrow on May --> Surpluses. Another example of wrong size borrows capital which making shortages or surpluses, the company needs $15,000 but my company just borrows $5,000 --> Shortages. Finally, wrong duration as well as period which make shortages or surpluses, for example the company loans money from bank with interest rate is expected 5% in five years, but because of my financial planning wrong, I loan in 8 years --> Surpluses. VI. Conclusion In this report, it is mentioned about different resource of capital that VFL can use to improve. Each method has advantages and disadvantages. It is strongly believed that, depend on situation of company at the moment, Mr. Alan and Mr. Geoff should chose method 2 because it combines between two main resources: Equity financing and Debt financing so it will limit disadvantages each other. In this report, it is also mentioned about financial planning, shortages and surpluses. In any situation, shortage and surpluses also influence to our company, it can make our company go bankruptcy so we must limit them in business. VII. Reference List BPP (2004), Managing Financial Resources and Decisions. 1st ed, Great Britain: W M Print. En.wikipedia [online] "Venture Capital" available from [http://en.wikipedia.org/wiki/Venture_capital] [accessed May 11, 2009]. Financial dictionary (2009) "Financial Planning" [online] available from [http://financial-dictionary.thefreedictionary.com/Financial+planning] [accessed May 22, 2009]. Findarticles (2009) [online] available from [http://findarticles.com/p/articles/mi_m3495/is_10_48/ai_109136178] [accessed on May 21, 2009]. Kien thuc tai chinh (2009) "Lap Ke Hoach Tai Chinh" [online] available from [http://www.kienthuctaichinh.com/2007/12/lp-k-hoch-kinh-doanh-phn-7-k-hoch-ti.html] [accessed May 22, 2009]. Oxford Business English Dictionary - Oxford University Press. Sbinformation (2009), "Debt and Equity Financing: Two Options for Financing Your Small Business" [online] available from [http://sbinformation.about.com/od/creditloans/a/debtequity.htm] [accessed on April 4, 2009]. ?? ?? ?? ?? 4 ...read more.

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