Sublime Sports Company Case Study

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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…show more content…
The cost of this source will be interest payable, some additional administration fees and bank services. The sources that are not suitable for this working capital venture capitalist because it is usually for small business, venture capitalists have sometimes limited funds; and factoring or invoice discounting it may be too costly for the business. b) Land and building at Hamryia. • Leasing since again it will be located at free zone place the rent will be cheaper so over a long period of time as it is a manufacture the company can own the building depending on the agreement. The cost of this source will be interest payable, some additional administration fees and bank services. • Share capital the company will be able to buy the land and build the manufacture and do not have issue cost. The cost here is not explicit including dividends unlike debt where the business has to pay prearranged interest. Overdraft and factoring will not be appropriate for land and building because they are short term the company might not be able to pay as a short notice. Regarding the overdraft, the amount of money provided by the bank will not be enough for this working capital. c) Additional equipment and…show more content…
• Trade credit the company can contact its actual suppliers and take a credit and pay for them later based on their previous invoices. This will be suitable for them because they already have a pass with those suppliers and therefore have a good relationship (trust) so it will be easier. • Overdraft the money of the overdraft will help to buy other essential assets that the company may not have existing suppliers trading with them. 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
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