Buying or Leasing? (Sources of Finance)

Question 1

Advantages of leasing

Answer 1

Good if AFL lack the internal funds to buy
No maintenance costs- owners responsibility
Flexibility- leave when they want

Question 2

Disadvantages of leasing

Answer 2

Expensive in the long run
Owners may put up the rent
Could be asked to leave at short notice

Question 3

Advantages of a mortgage

Answer 3

Can expand and change the factory however they like

Property value may increase in the future

Question 4

Disadvantages of mortgages

Answer 4

Value may fall- lose money
Interest rates are expected to rise
May not get one given their loss making situation
Property is security

Question 5

Advantages of sale of assets

Answer 5

No interest

No dilution of ownership or control

Question 6

Disadvantages of sale of assets

Answer 6

Have to reduce price if you want to sell them quickly

Not much capital generated

Question 7

Advantages of directors loans

Answer 7

No interest (potentially)
Less likely to be withdrawn

Question 8

Disadvantages of directors loans

Answer 8

Can demand the loan back at short notice

Financial risk for owner

Question 9

Advantages of government grants

Answer 9

Interest free
Not paid back
No dilution of ownership

Question 10

Disadvantages of government grants

Answer 10

Time consuming and costly to apply
May only be a small amount
Strict conditions

Question 11

Advantages of issuing more shares

Answer 11

Choose who buys them

Quick capital

Question 12

Disadvantages of issuing more shares

Answer 12

Dilute ownership and control

Expect dividends

Question 13

Should they buy or lease?

Answer 13

Given their loss making situation, I think lease