Discuss the suitability of the various sources of finance a large business might use when...

Question:

Discuss the suitability of the various sources of finance a large business might use when replacing old machinery.

Sources of Financing:

The sources of financing refer to different methods used by businesses, the government, or individuals to raise capital to finance their operations. Some of the sources of finance include loans, debentures, and retained earnings, among others. Many companies at one time will require funds for their expansion and growth.

Answer and Explanation:

Suitability of sources of finance to a large business.

  1. Company savings. A business may use its savings when replacing old machinery. The benefit of this kind of financing is that it's readily available and does not accrue any interest, as in the case of a loan.
  2. Bank loan. The business may take a bank loan to purchase new machinery. Its a suitable method of financing where the company has no adequate finance to buy the machinery.
  3. Trade credit. This is where the supplier delivers the item but accepts to receive payment later. It suitable where the business has no adequate resources and the machinery is urgently required.

Learn more about this topic:

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What Is Financing? - Definition & Types

from Corporate Finance: Help & Review

Chapter 8 / Lesson 7
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