Question The Board of Directors of BesTaste, a medium size company, wants cateri

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Question The Board of Directors of BesTaste, a medium size company, wants catering business that has been growing over the past six years. The local authority has permission to extend its current premises. The company granted the business assets. It will also require financial 00,000 in buildings and non-current will invest support for working capital. The Board of Directors has asked you, the Chief Finance officer (CFo), to evaluate the following sources of finance and report back before the next meeting. Required:
(a) Explain which source of finance in (a) above would be more beneficial for the buildings and non-current assets
. (b) Advise the Board of Directors on a source of finance for working capital.
(c) Evaluate various types of government aid for which the company might be able to

Explanation / Answer

a. Loan notes would be more beneficial for the building and noncurrent assets because company has to pay fixed rate of interest and interest is tax deductible while if company makes right issue of shares then company has to share the profit and it would dilute the ownership also. So, it would prefer to issue loan notes instead of right issue to maximize shareholders wealth.

b.

Sources of finance for working capital:-

Short term Finance

Internal Sources of finance - Tax provisions, Dividend provisions etc.

External Sources of finance - Bank overdrafts, cash credits, trade deposits, bills discounting, short-term loans, inter-corporate loans, commercial paper, etc.

Long term finance

Internal Sources of finance - Retained profits and Provision for depreciation

External Sources of finance - Share capital, Long term loan, and Debentures

c. c. The government provides finance to companies in cash grants and other forms of direct assistance, as part of its policy of helping to develop the national economy, especially in high technology industries and in areas of high unemployment

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