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THE FINANCING DECISION
Financing decision
In deciding on the best form of finance for a proposed
investment an enterprise should consider several factors,
including the following:
1.Financing options available:
• The financial crisis has restricted access to finance for many businesses
and also placed emphasis on the use of excessive debt finance. There are
still, however, various different sources of finance available to South
African businesses.
Refer to Annexure A – Chapter 7 (Managerial Finance current Edition) and
make sure that you are comfortable with the different sources of finance
available.
2. Cost considerations:
• Debt is cheaper than equity. However, too much debt creates financial
risk which in turn increases the return required by both debt (Kd) and
equity (Ke) providers.
• In addition to this certain sources of debt finance are cheaper than
others.
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