Sublime Sports Company Case Study

I- Evaluation of appropriate sources of finance for Sublime Sports Company and costs of different sources of finance. (1.3, 2.1)

Each source of finance possesses its own strengths and limitations, which can be long term or short term, is not appropriate for all working capital.

a) Legal and start-up expenses.

The most appropriate sources for this purpose:

• Overdraft can be an easy way for Sublime Sports Company to expand since it is quick and flexible i.e. it is kind of always available when you need it and almost costs nothing except the possible interests and fees.

• Corporate bonds here the company must evaluate the credit and interest risk because its physical assets might be used as collateral. Corporate bonds are usually more expensive than some other sources because of the higher interest or dividends.

• Retained earnings, the

Long-term bank loans and equity are not suitable because too costly, dilution of control for ordinary shareholders may occur they will want to and it is too risky for additional assets.

f) Other day-to-day expenses.

For security purpose (unexpected events) the company must use a short-term working capital such as: trade credit (the money that was delayed to pay suppliers can be use as day- to day expenses), bank Loans (short term), overdraft (is more suitable because it is quick and flexible plus the cash is available when the company will need it.) they have less degree of risk because the maturity period is little so it will not impact on future earnings.

The sources of finance that are be appropriate for this working capital are long term like long-term bank loans and corporate bonds because if the maturity period is too long the organization takes more risk, will have to pay higher fees plus the interest and might have to draw into future earnings.