A study on the various sources of finance

Extract

[...] If the company does not earn a rate of return equal to the cost of debenture funds, then the financial leverage created by the issue of debt financing will have magnified adverse effect on the EPS. A debt issue is also subject to the conditions prevailing in the capital markets, particularly when the required rate of return on new debt instruments is too high. This may also cause the company to delay the debt financing and/or resort to the equity financing. [...]

[...] The usual sources of finance for a project are: Equity capital, term loan, deferred payment, unsecured loans from promoters and internal accruals in case of an existing unit. Thus we see that firms generally in case of paucity of funds to purchase some asset, procuring some facility etc approach various financial institutions. These financial institutions provide different facilities to them to help them buy those assets by providing credit. Thus they help companies make use of the asset in return for an interest component added to the principal. [...]

[...] VARIOUS TYPES OF FACILITIES THAT CAN BE AVAILED FROM BANKS: FINANCING SCHEMES HIRE PURCHASE FINANCING CONCEPTUAL FRAMEWORK MEANING AND CHARACTERISTICS Hire purchase is a mode of financing the price of goods to be sold on future date. In Hire purchase transaction, the goods are let on hire, the purchase price is to be paid in installments and hirer is allowed an option to purchase the goods by paying all the installments. A Hire purchase agreement is defined as peculiar kind of transaction in which the goods are let on hire with an option to the hirer to purchase them, with the following stipulations: Payment to be made in installments over a specified period; The possession is delivered to the hirer at the time of entering into the contract; The property in the goods passes to the hirer on payment of the last installment, the seller becomes entitled to take away the goods; and The hirer/purchaser is free to return the goods without being required to pay any further installments falling due after the return. [...]

[...] These dividends are not tax-deductible; rather imply a burden of dividend tax on the company. At times, the new issue of the equity capital may reduce the EPS and may have an adverse effect on the market price of the equity share. PREFERENCE SHARE CAPITAL Preference shares are a type of security through which a company obtains funds in exchange up of for certain types of preferential treatment to its holders of the Company's equity shares. Preference shares occupies a position (relative to the residual ownership claims issued by companies) similar to that of a limited partner in a general preference of distribution of assets, in event of liquidation of the business, and in income, with respect to distribution of earnings. [...]

[...] Each holder owning shares as on a certain date (set at the time issue is approved) receives an option to buy a certain number of new shares. The shareholder is given notice of this fact and subsequently issued a form called a right, which outlines the terms and conditions of the option. One right is issued for each share and the total number of new shareholder may purchase with his right depends on the number of shares he owns at the time of the right offering and percentage increases in the total number of shares of the company represented by the new issue that is each existing shareholder gets an opportunity to subscribe to the new shares in the same ratio in which he holds the shares. [...]