Explain any four factors affecting financing decisions.

1.	Explain any four factors affecting financing decisions.
Answer» Financing Decision: This decision is about the quantum of finance to be raised from various long-term sources. It involves identification of various available sources. It has to make a judicious combination of these sources namely debt, equity preference share capital and retained earnings. The financing decisions are affected by various factors which are as follows: Cost: The cost of raising funds through different sources Is different. A good financial manager would normally opt for a source which is the cheapest. Risk: The risk associated with each of the sources is different. Flotation Costs: Higher the flotation cost, less attractive is the source. Cash Flow position of the company: A stronger cash flow position may make debt financing more viable than funding through equity.

Answer»

Financing Decision: This decision is about the quantum of finance to be raised from various long-term sources. It involves identification of various available sources. It has to make a judicious combination of these sources namely debt, equity preference share capital and retained earnings.

The financing decisions are affected by various factors which are as follows:

Cost: The cost of raising funds through different sources Is different. A good financial manager would normally opt for a source which is the cheapest.

Risk: The risk associated with each of the sources is different.

Flotation Costs: Higher the flotation cost, less attractive is the source.

Cash Flow position of the company: A stronger cash flow position may make debt financing more viable than funding through equity.

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