Task 1

1a. Identify and describe the various sources of finance available to Vale Filters Ltd.

To start up a business anyone needs capital. Capital here does not mean money only;
it can be machinery, human, infrastructure such as factory, building, etc. The question is
that from where we could get the capital. There are many sources of finance which would
accommodate a business with necessary capital.
• Business owner
There are three types of business owner named sole traders, partnerships and limited
companies. Based on each type’s characteristic it itself will have its own capital.
- Sole trader: owned by one person, however, it does not mean that only one
person works for business: he could have assistants to work for him. This person
runs the business directly; he provides all the money to start up the business and
all the benefit from it will belong to him.
- Partnership: owned by two or more people. Characteristics of this kind of
business are that the capital contributions, profit or risk to business will be
shared among these people.
- Limited companies: owned by two or more people. If a person joins in such a
kind of business, he then has both certain legal rights and certain legal
obligations. His certain legal right is that he owns property, for example money,
or machines. However, he only has the responsibility for paying back financial
debts which is limited to the amount that he puts in.
• Borrow from the bank
There are different types of bank in the banking system such as retail bank, merchant
bank or central bank. The main functions and activities of banks can be summarized
as below.
- Providing a place for individuals, firms and government to store their own
wealth.
- Providing a payments mechanism in which individuals, firms and government
can make payments to each other by cash, cheque.
- Central bank issue cash, coins and other types of money into circulation.

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 - Lending money in the form of loan, bond, debenture, overdrafts, etc depends on
purposes of using money.
- Providing a place for customer to exchange or buy or sell money, gold, foreign
currency.
- “Acting as ‘financial intermediaries’: they accept deposits from people who
have surplus wealth and lend it to those that need to borrow.” (Course Book
pg.12)
Besides borrow from the banks, business can also borrow money from the people
who have it. These people will make money by lending business in the way of getting
repayments and interest.
• Government aid
Governments are interested in business which provide employment and create wealth
for country. It is the reason for government to provide capital to a business in a long time
to repay and low interest.
• Other ways of borrowing
- Factoring: Factors are organizations that could take back debt for a business
which can not do it itself. In this case, the business could not take back total
debt. A part of debt will belong to factors, this part usually 15% or 20% of the
value of the debts.
- Leasing: Leasing is as form of rental in which there are two parties, the lessor
and the lessee. The lessors own an asset like plant and machinery, and vehicles,
equipment and so on but they don’t use it. They grant the lessees use of it and
then the lessees will pay money for these using.
- Hire purchase: For example, you like a car, you want to buy it but you don’t
have enough money. However, the supplier still sell it to you by the way of you
firstly pay a deposit then monthly or yearly you have to pay
- Franchising: Many big brands now are applying this kind of business such as
McDonald, KFC, BBQ, Lotteria, Pepperonis, etc. They are called franchisors
which have a successful business (selling fast-food like hamburger, pizzas, fried
chicken, etc) and instead of they themselves expand branches under its own

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 name it licenses franchisees to use its name. The franchisees directly run the
business, employing staff as necessary.
• Issued share capital (equity)
Definition: “Equity means simply the ordinary shares of a company” (Course book
pg.35)
- Equity: Retention of earnings – “This part of profits which is undistributed
provides a common means of raising funds from shareholders. The funds belong
to shareholders and, if not retained, would be distributed as dividends.”
(Course book pg.37)
- Equity: Rights issues involve new shares which are offered at a price lower than
market price, to the current shareholders in proportion to their current
shareholding.
- Equity: New issues of shares
- Preference shares – are equities securities which offer a fixed dividend that must
be paid before any dividend can be paid on the common stock.
• Retained profits
• Investors
- Pension funds
- Insurance companies
- Investment trusts are the companies whose operation is investing stocks and
shares of other companies and the government.
- Unit trusts
- Venture capital: Venture capital organizations are specialized in raising funds
for new business especially for fairly risky ventures.

1b. Assess the implications of the different sources of finance to Vale Filters related
to risk, legal, financial and dilution of control and bankruptcy.
The implications of the different sources of finance to Vale Filters related to risk, legal,
financial and dilution of control and bankruptcy will be presented in the table below.

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1c. Select appropriate sources of finance for Vale Filters and make
recommendations on the best ways of raising finance

Task 2
2a. Assess and compare various costs involved with each sources of finance to Vale
Filters Limited.

2b. Prepare the cash budget for Vale Filters Ltd. And discuss the importance of
financial planning.