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Financing decision - Coggle Diagram
Financing decision
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Pref shares
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Companies issue pref div
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Lower company's gearing, unless they are redeemable
Does not increase company's gearing, allowing it to borrow more in the future
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Equity as finance
Reserves
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Excess cash
Excess cash does not earn returns equal to WACC and therefore erode value.
The level of cash reserves is part of working capital management
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Lease or buy
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If investment decision indicates investment would be beneficial, then calc internal rates of return of the various finance options available
Sources of finance
Money market
Short-term financial market (usually repayable in one year or less) where borrowers and lenders are brought together by banks and other financial institutions.
Capital market
Longer term market for securities whereby entities can raise or invest in debt and equity. The capital market can further be segregated into the primary market (the market where new securities are sold) and the secondary market (where existing securities are sold by one investor to another)
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