Projects/Assignments · Q4
Q.Prepare a comparative chart of all the sources of finance.
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Start your 14-day free trial to unlock the full solution →Build a comparison chart with sources as rows and key attributes (period, ownership, generation, cost, security, control, merit, limitation) as columns, so every source can be compared at a glance.
How to design the chart: List each source as a row and use these columns — remembering the three classification bases (period, ownership, source of generation) plus the choice factors (cost, control, security):
- Time period — short-term / medium-term / long-term.
- Ownership — owner's funds or borrowed funds.
- Source of generation — internal or external.
- Cost — cheap / moderate / costly.
- Charge on assets — yes / no.
- Effect on control — dilutes control or not.
- Main merit and main limitation.
A model filling (illustrative rows)
- Retained earnings: long-term; owned; internal; no explicit cost; no charge; no effect on control. Merit: permanent, cost-free. Limitation: uncertain, may cut dividends.
- Trade credit: short-term; borrowed; external; costly; no charge; no effect on control. Merit: convenient. Limitation: limited, encourages overtrading.
- Factoring: short-term; borrowed; external; moderate; no charge. Merit: accelerates cash flow. Limitation: costly for small invoices.
- Lease financing: medium-term; borrowed; external; moderate; no charge; no dilution. Merit: asset use with low investment. Limitation: lessee never owns the asset.
- Public deposits: medium/short-term; borrowed; external; low cost; usually no charge; no dilution. Merit: simple, cheap. Limitation: unreliable, hard for new firms.
- Commercial paper: short-term; borrowed; external; low cost; unsecured. Merit: freely transferable. Limitation: only well-rated firms can issue.
- Equity shares: long-term; owned; external; costly (no fixed cost); no charge; dilutes control. Merit: permanent capital, no compulsory dividend. Limitation: dilutes control, more formalities.
- Preference shares: long-term; owned; external; fixed dividend; no charge; no dilution. Merit: steady income, no control loss. Limitation: dividend not tax-deductible.
- Debentures: long-term; borrowed; external; cheaper (interest tax-deductible); may be secured; no dilution. Merit: fixed cost, no control loss. Limitation: permanent earnings burden, repayment due. …
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