Question

What are the costs and benefits of financing from external and internal sources?

Answer 1

Benefits from internal financing sources are as follows-

A. Cost of finances are very less.

B. The terms and conditions are highly flexible in nature and they are providing the business with more flexibility.

C. They can be used as and when wanted.

Disadvantages of internal financing can be as follows-

A. Large projects cannot be funded

B. Loss on the part of shareholders on dividends.

C. They can be leading to loss of profit and opportunities if invested into the wrong projects

Benefits of external financing as follows-

A. Large amount of capital and finances can be raised through external financing.

B.finances can be raised for long period of time and they are also growth-oriented.

C. It helps in preservation of the resources of the company.

Costs of external financing as follows-

A. It can result into providing up with the ownership.

B.These external financing can also bear fixed rate of return and those will be interest payable.

C. They mostly have non flexible terms and conditions and they are putting a lot of restrictions.