07.30.09 Finance and Accounting

07.30.09 Finance and Accounting - Finance and Accounting...

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Finance and Accounting
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Management of funds External sources of funds
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Debt financing Debt financing is attractive to managers because: The rate of return is higher than the cost of interest that needs to paid on the loan Companies can make a tax claim on the interest that need to pay on the loan as it is a cost to the Bs
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Debt financing The money market is the source for debt capital. These funds are borrowed by the business and must be repaid with interest over a set period of time. Sources of debt finance include: Retail banks Merchant banks Finance Companies Government Bodies Building Societies Credit Unions Private individuals
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Short term borrowings Less than 12 months and typically 3-6 months
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Overdraft Is an agreement between? The bank and the Bs who needs to borrow money It is normally attached to a cheque account The purpose of this short term loan is to overcome cash flow problems Agreed limits are placed on overdrafts Interest rates are variable but interest is paid on a daily basis This short term loan is very flexible Security is needed at time of application
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Bank Bills Bank Bills are a type of exchange and are given for the larger amounts usually over $50000 as usually for 90 and 180 day periods They are attractive because: They have a low interest rate Bank does not use its own funds but acts as an agent and guarantees the funds will be paid on time There is great flexibility with repayment as it can be rolled over at the end of the borrowing period
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Long term borrowings Loans longer than a year
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Mortgage Loans Mortgage loans are a very secure loan in favour of the lender. Why? The Borrower needs to provide security, often in the form of property Low interest rates are charged. Why? The loan has very high security Mortgage loans are usually used to finance long term assets like new premises, a factory, office etc. Regular payments over a number of years are made
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Debentures Debentures are issued by a company for a fixed rate of interest and for a fixed amount of time and offered to the general public to buy. They are different to other loans because: They are not secured in the same way. Security to the lender is in the form of the company’s assets On maturity the company buys the debenture back with the agreed fixed interest as well
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Other external borrowings include Leasing Factoring Venture capital Grants
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Management of funds Internal sources of funds
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07.30.09 Finance and Accounting - Finance and Accounting...

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