Advertisements
Advertisements
Question
Explain the following as factor affecting 'financing decision'.
Control consideration
Advertisements
Solution
Control consideration: A firm may prefer borrowed fund securities to meet the fund requirement as the existing shareholders tend to retain complete control of a business. On the other hand, a firm may prefer owner’s fund securities as they are ready to lose control of the business.
Retention of Control: Debt
Sharing the Control: Equity
APPEARS IN
RELATED QUESTIONS
Explain the following as factor affecting dividend decision:
Taxation policy
Explain the following as factor affecting dividend decision:
Shareholder's preferences
| Ananta Ltd. is a company dealing in ready-made garments for the last many years. Recently the profit of the company has started increasing. The finance manager decided to retain the profit instead of distributing it among shareholders. |
- Identify and state the financial decision taken by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
| Ravi has joined as a finance manager at MTA Ltd. He had to arrange funds of rupees one crore for the company. The Chief Executive Officer of the company wants to arrange the funds by a public issue whereas the finance manager wants to have a mix of debt and equity as this will determine the overall cost of capital and the financial risk of the enterprise. |
- Identify and give the meaning of the financial decision suggested by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
Besides the total amount of long-term finance required, what must a business identify?
What must a business decide about each available source of finance?
What are shareholders’ funds?
What is the nature of debt in a debt-and-equity comparison?
Which payment is compulsory under the borrowing terms?
How does debt normally affect ownership control?
What may be the effect of a fresh issue of equity on control?
Why is cheaper debt not automatically the best source of finance?
What happens to debt’s interest and principal commitments when profits are inadequate?
What generally happens as the proportion of debt in total capital increases?
How does a higher floatation cost affect a financing source?
Which expenses are examples of floatation costs?
Which are examples of fixed operating costs?
Which set lists sources of finance considered in a financing decision?
