Sources of Finance Homework Task

Grade 12
Sources of Finance Homework Task

For the following items below, decide which form of external finance is suitable and why? (You may have to decide between more than one, evaluate the best solution)

Item:

An unexpected bill for repair of machinery. It must be paid immediately. The business has insufficient funds in it’s bank account.
5 new delivery vehicles need to be purchased for the company.
A sports team needs new uniforms.
A new machine is required for a printing company.
A builder needs to buy materials for building a villa.
A new company is looking for start up capital.
A firm is looking to recover bad debts.
A salesman is paying for flights and accommodation for an overseas sales trip.


1.There are a number of ways to resolve this short term problem. It could be resolved through a bank loan, a hire purchase or a Lease. Since this company is having some heavy financial problems, the best way to solve this problem is through leasing. This is because there is no large sums of money which are needed to buy the equipment, and the maintenance and repair costs are not the responsibility of the user. However the disadvantage to this is that it will initially cost more in the end.

2.For this a bank loan would more reasonable since these aren’t heavy machinery which cost a lot. Plus, these don't need such attention such as other machinery so it would be sensible to cover its costs as soon as possible.


3. A bank overdraft. Sport teams don't acquire as much financial aid as possible and uniforms will probably not cost as much. So the flexible use of a bank overdraft would be a reasonable method of payment.

4. A Hire purchase is the best method of payment here since it is a payment over heavy machinery. This method of payment is paid through a desired limit of time and is being dealt with the Finance house. So the business would technically be paying to the Finance house while it is using its machine and as for the seller he would be fully paid the initial price.


5. It can be used through credit cards, Dept Factoring, or Trade credit. Even though using the credit card would be the simplest way the Trade factoring is actually a bit more practical since you would be dealing directly with the seller.

6. A Debenture Loan Capital would be the most suitable for this case. A start company would need heavy financial aid to help survive in the market. So in order to pursue this goal they would need money and time to repay it back.

7. Government assistance or Mortgage. Government Assistance might be wiser since in these scenarios they would be the one's who would be involved since it will be a legal manner.


8. A credit card since it is extremely accessible and is simple to use, plus it could be used wherever you are.