Clariton Antiques Ltd have just been approached by'We Finance Limited', a venture capital organisation, with an offer to finance their expansion by offering the full 0.5m for a 20% stake in the business. Alternatively they can use the services of a finance broker to obtain a bank loan. The broker will charge a 1% fee on the amount secured and interest on the loan would be 2% APR payable over 10 years.
1. Analyse the costs of the two sources of finance under consideration with reference to; (assume all necessary details)
a) Dividends
b) Interest
c) Tax
2. Explain the importance of financial planning for Clariton Antiques Ltd wift reference to;
a) budgeting
b) implications of failure to finance adequately
c) overtrading