Financial Management ABC Motors Limited

Question: Discuss about the Financial Managementfor ABC Motors Limited. Answer: To the Board of Directors of ABC Motors Limited In this report a complete adamantine study has been prepared over the best suitability of financial resources for ABC Motors Ltd. This company is dealing in import and exports of good throughout the time. Now with a view to make enhancement in its business functioning CFO is required to prepare documents to guide the Board of directors to discuss the best ways of funding. However, there are several options e.g. long terms debts, debenture issues, new share issues, or other mixed offers thereof. Financing is needed to enhance a business functioning and ramp it up to profitability. There are several options for ABC Motors Ltd as per existing conditions of Australian market segment. (Equity Financing) Issue of new Shares ABC motors ltd has been providing import and export business throughout the time and with the help of its international brand image it could easily issues share in the market to raise capital. As company is going to issue its share for the first time (Initial public offer) which would increase company brand image and provide several benefits. It will also result into exchanging a portion of the ownership of the business for financial investment purpose. However, due to sluggish condition of Australian market ABC Motors Limited needs to hire underwriter for entering into contract of underwriting. In addition, employment turnover rate has also declined in the company. Therefore company should issues Employee stock option scheme for raising capital (Kaihatsu Kurozumi, (2014). Issue of Debentures Debentures are the bond which is issued to raise certain amount of money form the market at the certain interest rate. Ideally this is preferable for the company which pays high amount of tax. ABC Motors Limited could also use this option to raise capital from the market as the interest payable to debenture will be eligible for the deduction for the tax purpose (Seng Lai, (2010). Long Term Debts ABC Motors Limited is running its import and export business for a very long time. As per the available information it is found that banks forecasts for output growth and inflation rate are less variable and debts funding is also available at very low cost (Kiran, et., al., (2014). Mixed Offers ABC Motors Limited could divide its portion of capital requirement in several parts. In order to start a new project company wants to make investment of $ 8,000,000. Therefore Board of directors of ABC Motors Limited should divide its portion of capital in two different segments. Directors could raise $ 4,000,000 form issue of debentures as it would yield tax benefits to organization and rest $ 4,000,000 could be raised by issue of share to public and employees (Pure financial sees the value behind planning (2011). Lease It is the agreement between two parties lesser and lessee to use plants and machinery for certain period of time. Ideally in this, a fixed amount of installment as a rent is paid to owner for the use of assets. As the Australian market condition and real estate business is depicting very sluggish business conditions particularly in eastern capital cities. Therefore ABC Motors Ltd could use this process to finance its plants and machinery in determined approach. Company could use two types of lease operating lease and financial lease (Taheri., et., al., 2014). Venture Capital It is the money put into an enterprises which may all be lost if new project fails. The directors of the company must contract with the venture capitalist who could invest in this newly identified project. They are highly technocrat investors and ready to take high risk in order to earn high profit (PeConga, (2010). Best option to choose to finance the new project (Combination of Equity financing and debenture funds) ABC Motors Ltd being engaged in import and export business should consider combination of capital raising plan. With the given information it is observed that Inflation rate of Australia is quite low and economy is growing at very moderate rate. Therefore ABC Motors Ltd should issues $ 4,000,000 from initial public offer to general public and employees as well. It will turn out to be an advertisement process for its newly developed plan. In addition to this it will strengthen its image in the minds of general public. In addition, for saving tax company should issues debentures of $ 4,000,000 in the market. The price of commodity in the market has risen very drastically therefore investors would be more inclined toward purchasing bonds and debentures in the market. Moreover, the existing conditions of Australian market depicts that financial lenders are ready to lend at very low interest rate for worthwhile purpose. There are various facts and figures which are supporting ABC motors L td to issues debentures in the market e.g. The cost of capital will be very low as interest on debenture could be set out very low due to economic condition of market and easy availability of funds. Raising capital through issue of debentures is eligible for the deduction for tax saving purpose. It will increase the amount of cash inflow for the ABC Motors Ltd for its business functioning. In addition, company should issues its share to its employees as well in order to establish a nexus between companys growth and employees welfare (WATSON, (2013). New project of ABC Motors Limited $8,000,000 Issue of shares to employees and general public ( Initial public offers ) $4,000,000 Issue of debentures to take advantage of tax benefits $4,000,000 Now it could be said that there are various options available for the organizations to raise finance. ABC Motors should not stagnate with only one option to finance its project. It should make bifurcation in its capital requirement to finance its new project from different options to reap several advantages. References Kaihatsu, S., Kurozumi, T. (2014). Sources of business fluctuations: Financial or technology shocks?Review of Economic Dynamics,17(2), 224-242. doi:10.1016/j.red.2013.08.001 Kiran, R. S., Singh, V. K. (2014). How to make the financial analysis an easy task A comparative analysis between the traditional and the modern approach?International Journal of Engineering Research and Applications,4(8), 61-66. PeConga, G. (2008). 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