7.0_FINANCING_THE_PROJECT - FINANCING THE PROJECT IE 153...

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FINANCING THE PROJECT IE 153
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OUTLINE 1.0 Financing Considerations 2.0 Sources of Financing 3.0 Preparing Investment Proposal
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1.0 FINANCING CONSIDERATIONS Basic Questions: Where do I get the money to finance the project? Should it be “outside” money equity or debt financing? What legal structure should I choose and how will it affect financing? How much equity does the project need? How much money must be raised and when will it be needed?
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FUND SOURCING Equity Advantage is that no interest is paid and it does not have to be paid back. Further, assets purchased may be used as collateral. Disadvantage is that he entrepreneur must give up part of his company. Thus he will share not only the future profits but also its control Debt or Loan Advantage is that the entrepreneur does not have to give up any of the ownership. Also, interest paid is treated as an expense which can be deducted from gross profits before taxes. Disadvantage is that the debt must be repaid in amounts and at times specified by the terms of the loans.
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LEGAL STRUCTURE The legal form of organization may not be critical to its success, but it does have considerable influence on the business financing, taxes, and other matters.
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LEGAL STRUCTURE Seven Considerations: 1. Organization requirements and their cost 2. Liability of owners 3. Continuity of the concern 4. Transferability of interest 5. Management and control 6. Attractiveness for raising capital 7. Tax treatment
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FORMS OF BUSINESS ORGANIZATION 1. Single Proprietorship 2. Partnership 3. Corporation 4. Cooperative 5. Foundation – may be considered for a research or community development arm of a venture
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How much money must be raised? The difference between total funding needs and the portion of these needs that the entrepreneur himself can furnish. Total investment needs can be obtained in the financial analysis. However, the entrepreneur may wish to reexamine expenditures to determine if any can be reduced or at least delayed so as to reduce the initial financing.
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How much Equity? Thirty-four percent of the cost of buildings and
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This note was uploaded on 05/19/2011 for the course IE 2 taught by Professor A during the Spring '11 term at University of the Philippines Diliman.

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7.0_FINANCING_THE_PROJECT - FINANCING THE PROJECT IE 153...

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