TWH makes a range of toys using batch production. TWH’s Managing Director, Dylan, plans to invest in new technology to reduce average costs. ‘It’s the only way to increase efficiency as I do not know how we can improve employees’ motivation’ he said. Dylan cannot decide on whether it would be better to use retained profits or a long term loan as the source of finance.
- EXTRACT TABLE.JPG (13.31 KiB) Viewed 14 times
10 TWH can either use retained profit or a long term loan to finance the purchase of new technology. Which
option do you recommend TWH should use? Justify your answer. [6]
Possible KN Points:
Retained profits–
• no need to repay/readily available
• may not have sufficient funds available
• no funds available for other uses
Long term loan
• can plan repayments over time/know repayments
• interest costs to pay
• have retained profits available in case of need