Page 8 - PowerPoint Presentation
P. 8
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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