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FINA 213.pdf

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Write comprehensive notes on sources of finance
Sources of finance
There are a variety of reasons for sourcing money. Traditionally the need may be for capital
acquirement, i.e new machinery, construction of a new building or development of new products.
Some sources of finance are short term and must be paid back within a year. Other sources are
long term and can be paid back over many years.
Sources of finance can be from internal or external sources. Internal sources of finance are funds
found inside the business.e.g profits can be kept back to finance expansion. External sources of
finance are found outside the business .e.g. from creditors or banks.
They are:
(a)The capital markets:
(i)New share issues
(ii) Rights issues
(b)Loan stock
(c) Retained earnings
(d) Bank borrowing
(e) Government sources
(f) Business expansion scheme funds
(g) Venture capital
(h) Franchising
Ordinary (equity) shares
They are issued to the owners of a company. They have a nominal or face value, typically of $1
or $50cents.The market value of a quoted company’s shares bears no relationship to their
nominal value, except that when ordinary shares are issued for cash ,the issue price must be
equal to or be more than the nominal value of the shares.
Deferred ordinary shares