Question

Discuss in detail the options a firm will have if they don’t have external funding needs.

Answer 1

If a firm does not need external funding, it will have the following options to deal with its capital requirements-

A. Funding with reserve available to the company that will help the company to reduce the cost of capital because reserve do not have any cost of capital as they are belonging to the equity shareholders of the company.

B.the company can also issue with more of the equity capital and it will help the company in order to negate any kind of solvency risk and bankruptcy cost along with cost of financial distress associated with debt financing.

C. A company can also use employee stock option plan in order to raise additional capital by issuing of shares to the employee of the company in place of salaries.

D. A company can also raise the capital through selling of its fixed assets as those assets are not generating enough income but they can have higher realizable value in order to fund various projects.