Submitted by: Submitted by sydneypsd
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Words: 1628
Pages: 7
Category: Business and Industry
Date Submitted: 10/09/2015 07:10 PM
CASE 1: Sharma Taxis
Assignment Questions:
Question 1: Give two advantages to Joe when he admitted a partner. (2 marks)
First, when Joe admitted a partner, there is an availability to get larger resources, for instance, more capital can be injected to the firm by a new partner. Second, when Joe admitted a partner, he and his partner can work together with complementary skills, which can be very cost-effective as people specialize and become more efficient in certain aspects of their business.
Question 2: Elaborate on two reasons why firms need extra capital. (6 marks)
First, the firms need extra capital as a fund of extra working capital to support the day-to-day operations of business. This includes the purchase of stock, the payment of salaries, wages and other business expenses, and the financing of credit sales. Extra working capital is important when sales are expanding and more raw materials, work-in-progress and stock is needed. It tends to be short-term and often on a rolling basis in which more credit is taken out as earlier debts are repaid. For instance, Joe needs extra working capital to provide credit sales for the regular clients of his firm.
Second, firms need extra capital to finance the fixed assets. Fixed assets are items that have a long-term use, such as building, taxis and vans. The financing of fixed assets requires a medium-term and long-term commitment. Extra capital is needed to purchase fixed assets which are permanently required by the firm and for the maintenance of the fixed assets. For instance, Joe needs extra capital to update the computer facilities at the head office and to update the accounting and invoicing system of the firm.
Question 3: Suggest four sources of fund available to Joe Sharma to acquire another taxi business. Explain why you recommend each of these sources of fund. (12 marks)
The first sources of fund can be obtained by taking a loan from the bank. I recommend this method because the bank loan is a long-term...