MEDIUM-TERM FINANCING An asset holding period or investment horizon that is intermediate in nature.

Th e exact period of time that is considered medium term depends on the investor's personal preferences, as well as on the asset class under consideration. SOME SOURCES OF MEDIUM-TERM FINANCE BANK LOANS An arrangement in which a lender gives money or property to a borrowe r, and the borrower agrees to return the property or repay the money, usually al ong with interest, at some future point(s) in time. ADVANTAGES Can borrow large sums of money Can pay back in instalments Instalments are fixed makes budgeting easier DISADVANTAGES Can be charge high rates of interest Difficult for smaller firms to obtain a loan due to high risk LEASE FINANCING Leasing is an attractive financing option for companies needing equipment or fac ilities for a certain length of time. Lease generally range from one to three ye ars, giving businesses options outside of traditional bank loans ADVANTAGES Renting means you dont need to pay out large sums of money at one time. Can change rented equipment when out of date. DISADVANTAGES Do not own the equipment out right. In the long term can be very expensive PREFERENCE SHARES Company stock with dividends that are paid to shareholders before common stock d ividends are paid out. Preference shares typically pay a fixed dividend, whereas common stocks do not. And unlike common shareholders, preference share shareholders usually do not hav e voting rights. COMPARISON BETWEEN SHORT TERM, MEDIUM AND LONG-TERM FINANCING SHORT TERM FINACING easier to obtain since less risky from the point of view of the creditor when ap praising LGU often less costly since cost of short-term borrowing are lower than costs of lon g-term debt when rolled-over. LGUs will not be saddled with interest payments on debts over periods of time wh en funds are not needed offers flexibility to borrower. Once, settled the borrower may elect other sourc es of credit good source for seasonal and temporary fund requirements matures more frequently, which may put an LGU in a tight financial position to c over debt payments as scheduled uncertainty in interest costs of refinancing refinancing may be difficult to obtain if payment record of LGU for the previous loan is unsatisfactory MEDIUM AND LONG-T ERM all things being equal, less risky for LGUs since the chances of defaulting on p rincipal and interest payment are reduced. the LGU borrower is struck with the terms of the long-term loan for a longer per iod. higher, cost of financing, more expensive for the LGU. pay interest on debt over periods of time when the funds are not needed LONG-TERM FINANCE Purpose of long term finance To finance fixed assets To finance the permanent part of working capital To finance the growth and expansion of a business

Factors determining long term sources of finance Nature of business Nature of goods produced Technology used EQUITY CAPITAL Invested money that, in contrast to debt capital, is not repaid to the investors in the normal course of business. It represents the risk capital staked by the owners through purchase of a companys common stock(ordinary shares). Rights Of Equity Share Holders Right to Income Right to Control Pre emptive Right Right in Liquidation EQUITY CAPITAL PREFERENCE CAPITAL means the shareholders of a company holding preference share are not the owners of the company. The preference shareholders get fixed percentage of dividend fro m the profit earned by the company. Also they get preference over equity share h olders during the time of payment of dividend and during the time of winding up of the company. INTERNAL ACCRUAL It is the act or process of accumulating; an increase or something that accumula tes or increases. TWO KINDS OF INTERNAL ACRUAL Retained Earnings It is the portion of the profits which is not distributed among the shareholders but is retained and is used in business. Depreciation It is the decrease in the value of physical property with the passage of time. TERM LOANS It is a loan from a bank for a specific amount that has a specified repayment sc hedule and a floating interest rate. Term loans almost always mature between one and 10 years. TYPE OF BANK LOANS Secured-it is a loan in which the borrower pledges some asset (eg: car or proper ty) as collateral for the loan. Unsecured- These are monetary loans that are not secured against the borrowers a ssets. DEBENTURES/CORPORATE BONDS It is a type of debt instrument that is not secured by physical asset or collate ral. Debentures are backed only by the general creditworthiness and reputation o f the issuer. Both corporations and governments frequently issue this type of bo nd in order to secure capital. A bond is also used to describe a guarantee of another persons obligation. For ex ample, an insurance company might issue a $500,000 surety bond needed by a compa ny in order to engage in transactions on credit. This use of bond means that the insurance company is guaranteeing that it will pay up to $500,000 if the insure d company does not make its required payments for its purchases. We also use bond to mean that a company purchases insurance to protect itself fr om dishonest acts by its employees handling money. For example, some accounting textbooks state that a companys employees should be bonded. However, the cost of such protection may far exceed the expected benefits. Classification of debentures Redeemable Debentures-maturity date is specified.

Irredeemable Debentures-the company can repay the amount at any time but has to pay interest without fail. Convertible debentures, which are convertible bonds or bonds that can be convert ed into equity shares of the issuing company after a predetermined period of tim e. "Convertibility" is a feature that corporations may add to the bonds they iss ue to make them more attractive to buyers. In other words, it is a special featu re that a corporate bond may carry. As a result of the advantage a buyer gets fr om the ability to convert, convertible bonds typically have lower interest rates than non-convertible corporate bonds. Non-convertible debentures, which are simply regular debentures, cannot be conve rted into equity shares of the liable company. They are debentures without the c onvertibility feature attached to them. As a result, they usually carry higher i nterest rates than their convertible counterparts. Types of bonds TERM BONDS w/ single date of maturity COLLATERAL BONDS secured FIXED RATE BONDS-rate of interest is fixed ZERO COUPON BONDS-no interest rate Return/yield=Maturity value -Acquisition valu e DEEP DISCOUNT BONDS-issued at a deep discount over its maturity price. This bond appreciates to its maturity value over the maturity period. FLOATING BONDS-rate of interest is not fixed. Changes according to Benchmark rat es.