1.

Critically discuss which type of source of finance will be suitable for listed company and
newly short-up company and explain with the reason.

To establish a firm and grow it to profitability, you'll need money. When seeking for start-up
funding, there are various options to explore. However, you must first determine how much money
you require and when you will use it. The two main types of funding are debt and equity. Grants
from the government to fund certain components of a business might be a possibility. Incentives for
locating in specific localities or encouraging operations in specific industries may also be given.
Firstly, type of source of finance is equity financing. The term "equity financing" refers to the
exchange of a portion of a company's ownership for a financial investment. An equity investment
gives the investor a part of the firm's profits in exchange for a stake in the company. Equity refers to
a long-term investment in a firm that is not reimbursed by the company. In a fully constituted
corporate company, the investment should be appropriately defined. To control voting rights among
shareholders, companies may create multiple classes of stock. Companies may also employ several
forms of preferred stock. Common investors, for example, have the right to vote, but preferred
stockholders do not. However, in the event of a failure or bankruptcy, common investors are last in
line for the company's assets. Prior to common investors receiving a dividend, preferred owners get
a present pay out. Secondly, type of source of finance debt financing. Debt financing involves
borrowing funds from creditors with the stipulation of repaying the borrowed funds plus interest at
a specified future time. For the creditors the reward for providing the debt financing is the interest
on the amount lent to the borrower. There are two types of debt financing: secured and unsecured.
Collateral is required for secured loan. Unsecured debt, on the other hand, lacks collateral and puts
the lender in a less safe position in terms of repayment in the event of default. Debt finance (loans)
can be either short-term or long-term in terms of payback. Short-term debt is typically used to fund
current activities like operations, but long-term debt is typically used to finance assets like buildings
and equipment. Lastly, type of source of finance is lease. A lease is a way to get access to assets for
your firm without having to employ debt or equity funding. It's a formal agreement between two
parties that spells out the terms and conditions for renting a physical item like a building or
equipment. Lease payments are frequently required once a year. The arrangement is frequently
made between the company and a leasing or finance company, rather than between the company
and the asset provider directly. The asset is returned to the owner, the lease is extended, or the item
is acquired after the lease expires.
2. The advantage and disadvantage of equity and debt finance.

Advantages of equity

i) Less risk

When you use equity financing, you don't have to worry about making set monthly loan payments.
This is especially useful for new firms that may not have positive cash flow in the first few months.

ii) Credit problems

If you have credit issues, equity financing may be your sole option for raising capital for expansion.
Even if debt funding is available, the interest rate and monthly payments may be too expensive to be
acceptable.

ii) Cash flow

Equity financing does not deplete the company's cash reserves. Debt loan repayments deplete the
company's cash flow, lowering the amount of money available to fund expansion.

iv) Long-term planning

Investors in the stock market do not anticipate a quick return on their investment. They have a long-
term perspective and are also concerned about losing money if the firm fails.

Disadvantages of equity

i) Cost

Equity investors demand a return on their investment. The company's owner must be willing to
share a portion of the profits with his equity partners. The amount paid to partners may be more
than the interest rates on debt financing.

ii) Loss of Control

When a business owner takes on new investors, he must relinquish some control of the company.
Equity partners want to have a say in how the company makes choices, especially large ones.

iii) Potential for Conflict

When it comes to making decisions, not all partners will always agree. Disagreements about
management styles and various visions for the organisation can lead to these disputes. An owner
must be willing to work through these disagreements.