Managing Financial Resources and Decisions Coursework

Managing Financial Resources and Decisions - Coursework Example Additional supply of funds in the capital market lowers this cost of borrowing. The cost of using loan stock and bank lending is expressed as a rate of interest. This interest rate is relatively high because it depends on the companys credit rating. The interest has to be paid whether or not the company makes a profit. Retained earnings are funds that are believed to cost nothing because it has no issue costs as the company just needs to set aside part of their profits. Government sources are normally free because they are part of the policy to develop the national economy,; however; there are some conditions that must be met. For instance, a company must be in the relevant industry and a specific location. Venture capitalists and angel investors usually require a high expected rate of return on their investments so as to compensate them for the high risk. As a result, the cost of obtaining such funds is usually very high. The cost of sales nd lease back arrangement is often the ongo ing lease payments. Each source of finance has a set of implication, for instance, for sources like bank lending and loan stock, the borrower is required to pay some amount of interest on the principal. In addition, they can be penalized for infractions of the written contract between them, for instance, late payments. With retained earnings, the company will have to forgo dividend payments that may affect its image in the eyes of investors as they go for companies that pay regular dividends. As for government sources, the company will be under government control. Finally, with venture capital and angel investors, the company will be penalized for infracting written agreements between them and the private investors c) A highly geared organization has a high proportion of debt compared to equity. They, therefore, need to borrow from the capital market in order to balance the dent and equity proportions. A low geared