Explain any two factors affecting the financing decision.
Explain any two factors affecting the financing decision.
Financing decision is concerned with raising funds from long-term sources, i.e., through shareholders funds or borrowed funds. Shareholders funds include share capital, reserves and surplus and retained earnings, whereas, borrowed funds include debentures, long-term loans and public deposits.
Factors affecting financing decision:
Cost: The costs of raising funds from different sources are different. A wise finance manager opts for the cheapest source of finance.
Risk: The risk associated with each of the sources is different. The source which involves the least risk should be preferred.
Floatation Cost: If the floatation cost, i.e. the expenses incurred in the issue of debt is higher, the source of finance becomes less attractive.
Financing decision is concerned with raising funds from long-term sources, i.e., through shareholders funds or borrowed funds. Shareholders funds include share capital, reserves and surplus and retained earnings, whereas, borrowed funds include debentures, long-term loans and public deposits.
Factors affecting financing decision:
Cost: The costs of raising funds from different sources are different. A wise finance manager opts for the cheapest source of finance.
Risk: The risk associated with each of the sources is different. The source which involves the least risk should be preferred.
Floatation Cost: If the floatation cost, i.e. the expenses incurred in the issue of debt is higher, the source of finance becomes less attractive.
