Managing Financial Resources and Decisions

4117 WordsNov 26, 201217 Pages
Executive summary This report is to propose an appropriate capital structure for Xpresso Delight Limted’s business expansion with the minimum amount of capital as US$ 30 million. In order to achieve that goal, firstly, it is going to identify the sources of finance available for the business as debt financing which include loans, debentures and bonds; and equity financing, which includes common shares, preference shares and retained profit. It is also to discuss advantages & disadvantages of each source, as well as to assess the implications of these different sources related to risk, legal, financial and dilution of control and bankruptcy. Based on those analyses, it is to select the appropriate sources of finance for the…show more content…
Therefore, there are two principal sources of finance available to Xpresso Limited including debt and equity financing. 4.1.1. Debt financing: In regards to debt financing, the simplest meaning is borrowing money on credit with a promise to repay the amount borrowed, plus interest18. There are many types of debt financing, including borrowing from banks in terms of loans; or borrowing from investors in terms of debentures, bonds 4. 4.1.1.1. Loans: A loan is a financial transaction in which one party - the lender - agrees to give another party - the borrower an amount of money which must be paid back in full16. With a good finance profile and the support of Vietnam government pro-business policies, it is easier for Xpresso Limited to borrow from commercial banks such as Vietcombank, VietinBank and so on. For example, the supportive interest rate of loans in Vietnam at present is fluctuating between 5 and 6 percent per year14, therefore if Xpresso Limited. borrows US$ 10,000, the interest it has to pay back will be between US$ 500 and US$ 600. 4.1.1.2. Debentures: It is a channel for Xpresso to mobilize capital from investors setting out the terms of loans, backed by its reputation but not collateral12. Investors can be individuals, Vietnam and foreign
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