Managing Finance (MNGFIN) Week 8: Raising and managing working capital Raising capital There is no textbook reading for this topic. Pay special attention to the additional Web-based materials and journal article referenced below. Businesses run on capital—it is the fuel that is needed to get from point A to point B. Long-term investments require substantial amounts of capital investment in the form of bond issues and sales of stock to purchase land, build facilities, or conduct necessary research. Organisations have various options with regards to how they will obtain the funds necessary to start operations or pursue new projects. While there are numerous variations of capital sources, there are three broad categories: equity, debt, and retained earnings. Equity is generally seen in the form of stock that organisations sell to raise funds, either to begin operations or to acquire additional reserves for the purpose of long-term investment. Issuing stock or shares of the organisation generally requires that dividends be paid to investors while the share remains outstanding. Therefore, dividends represent a cost to the organisation that must be considered when making investment decisions. The project must be profitable enough to make these payments while also increasing the value of the organisation. By adding value to the organisation, the company itself is worth more, which increases the value of the shares that investors hold. Long-term appreciation is the primary goal of shareholders, so the addition of wealth must also be considered when making investment decisions. The second category of capital is debt financing. Organisations can obtain funds by borrowing from financial institutions or by issuing bonds. Funds obtained through debt must be fully repaid with the addition of interest. Interest represents the cost of obtaining the funds and must be factored in when evaluating investments. Just as with dividends, projects must be profitable enough to cover the cost…