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Extent of Financing Required
It is clear that sales are unsure with low, high and medium estimates of demand. This of itself gives a few uncertainty but the reliability and probability of these estimates will need to be established by appropriate market research. If sales are inferior than expected then any bank finance will take longer to repay thus increasing the amount of finance needed and the proportion of longer-term finance.
Pretentious that just-in-time inventory management is not implemented then the maximum finance requirement is $155640.
Subsequent to July 2003 the expected net cash inflow will be constant (ignoring any further purchases of fixed assets) as follows
Therefore to pay off a loan of $155,054 it would mean payments over 32 months (155054/4839) would have to take place excluding interest charges. Any difference in these estimates would however affect the amount of the financing needed.
Additionally to uncertain trading results affecting the amount of future financing there is an additional requirement to finance future capital investment as the business expands. This is probable to be a major financing need in the future depending on the rate of expansion.
The levels of the taxation, drawings and interest charges will as well extend the amount of finance needed as these items were not included in the cash budget presented.
discuss cost of capital in finance#
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