7. MP Ltd. is planning to expand their business and need money. The
finance manager reported that company is not in a position to bear extra
burden of paying interest and equity shareholders insisted not to isssue
more shares as there is risk of loosing control on issue of new shares in
the market.
(a) Suggest a source of owner's fund suitable in above case.
(b) State any two advantages of this source.
Answers
Answer:
Explanation:
a. Business simply cannot function without money, and the money required to make a business function is known as business funds. Throughout the life of business, money is required continuously. Sources of funds are used in activities of the business. They are classified based on time period, ownership and control, and their source of generation.
b.External sources refer to the sources that are exogenous to the organisation,i.e.they are available outside the organisation. The following are the benefits of external sources of recruitment.
(i)Infusion of new talent:When vacancies are filled through external sources of recruitment, there is infusion of new blood in the organisation. This improves the scope for increasing the organisational efficiency.
(ii)Wide range of choice: External sources have a benefit over internal sources as they provide a wide range of choices for selection.In internal sources, this choice gets restricted to a very few people. When external sources, such as advertising or placement agencies, are used for recruiting,a wide variety of applicants apply for the job vacancies and hence the organisation gets various option to select from.
(iii)New enterprise: In case a firm is newly established, it cannot use internal sources for recruitment.Hence,it has to opt for external sources such as employment exchanges or advertising for attracting new applicants.
(iv)Specialised personnel: If external sources are used, then an organisation has the advantages of hiring specialised and trained candidates for particular jobs. As technology keeps changing, the existing employees may not be able to handle new technologies and hiring new talent becomes a necessity.