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Identify and describe the most appropriate sources of finance to meet the needs of (i) RIM Ltd (ii) Individual stallholders - Leaving Cert Business - Question A - 2012
Question A
Identify and describe the most appropriate sources of finance to meet the needs of (i) RIM Ltd (ii) Individual stallholders. (20 marks)
Worked Solution & Example Answer:Identify and describe the most appropriate sources of finance to meet the needs of (i) RIM Ltd (ii) Individual stallholders - Leaving Cert Business - Question A - 2012
Step 1
Identify and describe the most appropriate sources of finance to meet the needs of RIM Ltd
Answer
To meet the financial needs of RIM Ltd, the following sources of finance can be considered:
Long Term Finance
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Mortgage/Long Term Loan/Debenture:
- RIM Ltd could secure a long-term loan of €400,000 from a bank, which is repayable over more than five years. This loan would be secured against the factory warehouse, allowing RIM Ltd to finance the purchase without immediate capital.
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Equity Share Capital/Owners' Capital:
- By raising capital through selling shares to individual stakeholders, RIM Ltd can generate funding without any obligation to repay, although it would dilute ownership.
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Government Grants:
- RIM Ltd could apply for grants provided by local or national government agencies that support community enterprises, which would not require repayment and would help finance initial setup costs.
Medium Term Finance
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Medium Term Loan:
- A fixed-rate medium-term loan for specific renovations or investments with a clear repayment plan could also be an option for RIM Ltd.
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Hire Purchase:
- For the acquisition of equipment necessary for the market, RIM Ltd might consider hire purchase agreements that would allow them to pay for items gradually over time while using them.
Short Term Finance
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Bank Overdraft:
- RIM Ltd could open a bank overdraft facility to handle short-term cash flow issues. This would provide immediate access to necessary funds for operational costs.
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Trade Credit:
- Using trade credit would allow RIM Ltd to stock the market's supplies without immediate payment, thus improving cash flow.
Step 2
Identify and describe the most appropriate sources of finance to meet the needs of individual stallholders
Answer
To meet their financial requirements, individual stallholders can consider:
Medium Term Finance
- Hire Purchase:
- Stallholders could acquire equipment and supplies through hire purchase agreements, allowing them to spread costs over time.
Short Term Finance
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Bank Overdraft:
- Individual stallholders might also establish an overdraft facility for temporary financing needs, helping manage day-to-day expenses more effectively.
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Trade Credit:
- Stallholders can negotiate with suppliers for trade credit, enabling them to purchase necessary materials while delaying payment, which helps maintain cash flow.