The costliest of long-term sources of finance is __________________.Preference share capitalRetained earningsEquity share capitalDebenturesCapital raised through private placement. (2024)

FAQs

What is the costliest source of finance? ›

The costliest long term source of finance is Preference share capital or preferred stock capital. It is the source of the finance.

The sources of long-term financing include equity capital, preference capital, debentures, term loans, and retained earnings. To maintain a healthy asset-liability management (ALM) position, a company's management should ensure a mix of short-term and long-term financing sources.

Long-term finance can be defined as any financial instrument with maturity exceeding one year (such as bank loans, bonds, leasing and other forms of debt finance), and public and private equity instruments.

Cost of equity is a return, a firm needs to pay to its equity shareholders to compensate the risk they undertake, by investing the amount in the firm. It is based on the expectation of the investors, hence this is the highest cost of capital.

Retained earning is the cheapest source of finance.

Personal loans and credit cards are more expensive than vehicle or home loans as there is no security for these debts. Therefore, it can be harder for the bank to get its money back from defaulting consumers. The most expensive type of debt comes in the form of pay day loans.

Share capital is the money invested in a company by the shareholders. Share capital is a long-term source of finance.

Retained earnings are a continuous source of funds for an organisation. There is no explicit cost in the form of interest, dividends, or floatation costs. Because funds are generated internally, there is more operational freedom and flexibility. It improves the company's ability to absorb unexpected losses.

Equity share capital is the portion of a company's capital that is raised by issuing shares to shareholders in exchange for ownership of the company. It is a type of financial instrument that allows companies to raise funds from the public. Equity share capital is an important part of equity capital markets.

The equity share capital is called risk capital because equity shareholders are entitled to get the dividend only after all other classes of shareholders have received their specified returns.

What is an example of a long term loan? ›

Long Term Loans

This loan comes with significantly higher repayment tenures, and you can repay it over an extended period of time, usually ranging from 3 years to 30 years. Examples of long-term loans include Home Loans, Car Loans, Two-Wheeler Loans, Personal Loans, Small Business Loans, to name a few.

Long-term finance is that which is required for a long period of time, i.e. no less than 5 years . These long-term sources are generally required for the acquisition of fixed assets as these fixed assets are purchased for a long period and are also very expensive than current assets.

Cost of preference share capital is that part of cost of capital in which we calculate the amount which is payable to preference shareholders in the form of dividend with fixed rate. Was this answer helpful?

Debt instruments like debentures, long-term loans, etc prove to be the cheapest source of finance since interest paid on them is a tax-deductible expense.

Typically, the cost of equity exceeds the cost of debt. The risk to shareholders is greater than to lenders since payment on a debt is required by law regardless of a company's profit margins. Equity capital may come in the following forms: Common Stock: Companies sell common stock to shareholders to raise cash.

Typically, the cost of equity exceeds the cost of debt. The risk to shareholders is greater than to lenders since payment on a debt is required by law regardless of a company's profit margins. Equity capital may come in the following forms: Common Stock: Companies sell common stock to shareholders to raise cash.

Debt and equity are the two major sources of financing. Government grants to finance certain aspects of a business may be an option. Also, incentives may be available to locate in certain communities or encourage activities in particular industries.