An established company wants to acquire funds for conducting business globally. State some of
the factors that should be considered prior to make a choice for source of funds.
Following points should be considered to make a choice for source of funds
(i) Cost Two types of cost are there viz the cost of procurement and the cost of utilizing the funds. These two costs should be considered very carefully before making a choice.
(ii) Financial Strength This should be considered most as if the company is having the stable , operations it can be in the position to repay the debts. Thus, the financial strength of an enterprise is also a key determinant in making the choice of funds.
(iii) Control A particular source of fund may affect the control and power of the owners on the management of a firm. Say if a company issues equity shares to the public, the control of the existing group of shareholders would be diluted.
(iv) Degree of Risk The risk associated to each of the source is different. Thus, a finance manager must evaluate the degree of risk involved in each source to make an appropriate choice.
(v) Tax Benefit To avail tax benefits, companies consider every possible source very minutely.