Leaving Cert Business Marketing: Identify and describe the most a

Identify and describe the most appropriate sources of finance to meet the needs of (i) RIM Ltd - 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.

Worked Solution & Example Answer:Identify and describe the most appropriate sources of finance to meet the needs of (i) RIM Ltd - Leaving Cert Business - Question A - 2012

Step 1

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Answer

RIM Ltd. has various options for financing its operations, including:

Mortgage/Long Term Loan/Debenture: This allows RIM Ltd. to borrow an amount sufficient to purchase the factory warehouse, valued at £400,000. The loan can be secured against the warehouse itself, ensuring that the bank has recourse in case of default. Interest rates and repayment terms can be structured to suit the company's financial situation.
Equity Shares/Capital Owners' Capital: RIM Ltd. could raise the £400,000 needed by selling shares to investors. This method does not require repayment, as investors gain ownership stakes and a share in the profits.
Government Grants: Local government agencies may provide grants for community projects such as RIM Ltd., allowing for initial funding without repayment obligations.

Medium Term Bank Loan: RIM Ltd. could consider a medium term loan with fixed interest to finance refurbishment efforts, such as the additional £60,000 needed for upgrades to the warehouse. This type of financing usually spans 1-5 years.
Hire Purchase: This arrangement may allow RIM Ltd. to purchase necessary equipment gradually. Payments would be made over time, enabling the company to manage cash flow.

Bank Overdraft: RIM Ltd. can utilize a bank overdraft to manage short-term cash flow needs. It allows withdrawal beyond the bank balance, assisting in handling immediate expenses.
Trade Credit: Negotiating favorable payment terms with suppliers can enable RIM Ltd. to manage inventory costs without immediate cash outlays.

Step 2

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Answer

The stallholders at RIM Ltd. may require specific financing options tailored to their scale:

Hire Purchase: Individual stallholders can utilize hire purchase arrangements to acquire equipment or inventory without significant upfront costs, paying over time.
Personal Savings/Investments: Many stallholders may rely on their personal funds or savings to cover the initial setup costs, keeping debt to a minimum.

Bank Overdrafts: Stallholders may also secure personal bank overdrafts to address cash flow issues during periods of fluctuating sales.
Trade Credit: Utilizing trade credit from suppliers allows stallholders to purchase goods and pay later, which can assist in managing cash flow effectively.