Accounting Coursework. Accounting, Finance, SPSS Coursework

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May 8, 2020
a)
b)The company may finance the purchase of the aircraft through the issuance of a debt or equity instrument or a combination of both. In debt financing, the company issues instruments, such as bills, notes, and bonds to investors, who will give money in return. However, since a financial obligation exists, the debtor is obliged to repay such amount at the agreed date plus the corresponding interest. The benefits of this type of financing include the savings on income tax since the interest related to the debt is tax-deductible and the retention of control. The relationship ends as soon as the debt is repaid. Moreover, the use of debt financing facilitates the easier preparation of budget since the interest to be paid fixed as it is based on the terms of the instrument (Ghosh et al, 2010, pp.538-559). However, the use of this type of financing also has several drawbacks. One is the strict qualification requirements that must be satisfied and complied with in order to obtain the needed funds. Banks also consider the credit rating of the company. Another is the need for discipline to repay on time. This is difficult for companies, especially those with unpredictable cash flows, and highly depends on sales as to the availability of cash. In case unforeseen events occur that led to a sudden drop in sales, the company will face a serious dilemma as to where to get the cash for payment. Lastly, financing through debt sometimes requires the use of collateral, which could put some of the company’s assets at risk. More often than not, collaterals have a value higher than the amount of the actual debt. Should the company fail to pay at the date specified, the asset will be used as a payment (Baber et al, 2013, pp.212-227).
On the other hand, equity financing involves the issuance of an equity instrument in exchange for cash. In other words, the company sells ownership in the company in the form of shares, and the proceeds will be used to fund their project. This is usually used by companies that are still starting up or those who are in immediate need of cash. It is closely watched by the local and national governments to ensure that the regulatory requirements are being followed. One advantage of equity financing is that there is no need for an outlay of cash. The company does not have to pay interest and monthly repayments. In this case, it will have more cash available, which may be used for other purposes such as for investment, and for the operations of the company. Issues on creditworthiness will also be avoided (Belo et al, 2019, pp.3500-3543). However, there are also disadvantages associated with equity financing. One of which is the loss of control since there will be additional investors with whom you will share the control of the company. This may also cause conflicts and may lead to tension, especially if there are differences in the ways they run the business, as well as management styles (Raude et al, 2015, p.193).
c)
d)In evaluating whether to invest in the aircraft or not, the company must consider first whether it will benefit the company throughout its useful life or not. In doing so, they may use several measures, including ...