Unit 2 Managing Financial Resources Level 5 Higher National Certificate

Task 1

1.1 Range of sources of finance available to build and expand XYZ Ltd

There are type of financial resources are found in respect of generating financial requirement with in the organisation. Main financial resources subject to generating finance are defined as follows:

Owner's capital: owners of organisation contributes funds by their own. This is one of the cost effective source of funding with in the organisation. Business need not to pay any further cost to external parties. Owner's keep significant share in profit in exchange of their contribution.

Loans: this is one of the external source of funding which fulfil the short term and long term requirement of finance with in the organisation. Company has to pay interest on the loan amount for a specific rate of interest. Short term loans contains high rate of interest and long terms loans contains low rate of interest (Yang and Wong, 2012).

Retain earnings: this source of fund is considered as internal source of funding subject to fulfil the financial requirement with in the organisation.

1.2 Implications of legal, financial and dilution of control with in the organisation

Legal financial terms are used to analyse the sustainability of projects and investment. Financial sources are required to set of implications. Which are required to analyse the aspect in terms of analysing the comparability of projects and investment. Debt financing and loans are the sources of funding which contains lots of legal terms and procedures. Organisation has to face lots of legal formalities and aspects in terms of repayment and payback of loans and interest.

All the legal terms and formats are required to analysed before adopting the finance source form market. It is required to read all the related documents and papers related to loans and bonds. Thirty party investments also bound the organisation subject to repayment of loans and debts. So it is required that organisation need to understand legal dimensions subject to repayment of loans.

1.3 Benefits of finance for the expansion project

As per analysis of financial resources subject to expansion plan in respect of XYZ Ltd, it is suggested that loan is considered as options for investment. There are some benefits of loans and short terms debts are defined below.

Advantages of long term loans: long term loans and debts fulfil long term financial requirement of organisation. This is one of the beneficial financial resource because interest rates remain low on long term loans and advances (Witt, Brooke and Buckley, 2013).

Advantages of short term loans: these are the type of financial resources which fulfil the sort term financial requirement of organisation. Duration of short term loans do not more than three years.

2.1 Evaluation of the cost of chosen sources of finance for the expansion project

It is seen that the cost of different source of finance remain associated with cost of expansion plan and project;

Cost of debts and loans: organisation has to pay an specific amount of interest upon loans and advances. It is required to analyse the cost of operations and advances subject to determine the cost of long term debts and loans. There is an annual rate of interest is mentioned upon loans and advances which is considered as cost of financial resources.

Opportunity cost: the cost of losing the existing investment option to choose better alternative is called as opportunity cost. In other words if an organisation opts a better investment plans with its existing one, than the difference between the amount of new plan and existing plan is called as opportunity cost (Spenceleym, 2012).

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