Page 174 - 5.2 i. Manac Finance ITC Summarised Notes
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THE FINANCING DECISION
Determining the most cost-effective
form of finance
• When comparing the cost of several viable financing
options, it is important to compare like to like.
• Therefore, a financial manager should attempt to compare
the cost of different financing options where these have
similar conditions, security requirements and covenants.
• If the options are not directly comparable in this way, these
factors should be adjusted for in the calculation (which may
involve a great deal of subjective adjustment, which in turn,
will reduce the reliability of the results).
• In deciding on the most cost-effective form of finance, you
should calculate and compare the following for each viable
finance option:
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