Page 8 - PowerPoint Presentation
P. 8
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.
8
